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0DTE - Intraday Chaos Creator

Within the past three days, S&P 500 Volatility Index (VIX) has moved up from the 19 to 27 level. But the intraday peak of the index has been near 30 from where it falls into the close. This intraday volatility is not only due to the new flow as the markets figure out the real impact of the recent bank fallout. It has a major contributor called Zero Day To Expiry (0DTE).


It is a strategy recently got discovered by retail traders and now accounts for 44% of intraday option volumes. This contribution increases if the options having less than 7 days to expiry are included.


Due to this, the VIX has been lower for the past two months as the intraday closes were contained. But now when there are events that have increased the uncertainty these options face a high level of price volatility as they are shortest in expiry.


It has also resulted in two of the largest global brokerages highlighting the risk and the magnitude of influence it has on the daily markets.


According to one of them, a drop of 5% during the day can extend into a 25% drop as the traders would be forced to close the position within the shortest time frame. They also highlighted that the main problem would accelerate if this occurs near 1 pm as the markets are least liquid during that period.


This risk is not factored in any of the estimates and is very difficult to assess its impact. But if and when the financial market stability becomes vulnerable it will surely become one of the headline reasons.

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