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Can Zero-Day Options Really Drive Volatility?

Cboe Global Markets reports that 0DTE options comprised 43% of total SPX options volume in 2023 YTD. That growth has made some investors uneasy—particularly as intraday volatility spikes draw headlines. The concern? That a new class of ultra-short-term traders is distorting price discovery. But does the data back up the fear?
ByAlexander Harmsen
Fact checked byDiversification.com Compliance Team
Can Zero-Day Options Really Drive Volatility?

Cboe Global Markets reports that 0DTE options comprised 43% of total SPX options volume in 2023 YTD. That growth has made some investors uneasy—particularly as intraday volatility spikes draw headlines. The concern? That a new class of ultra-short-term traders is distorting price discovery. But does the data back up the fear?

This article investigates whether 0DTE options truly drive volatility—or if they’ve simply become a convenient scapegoat during already unstable markets.

Key Takeaways

  • Zero-day options trading has surged—but correlation with major market swings remains inconclusive.
  • Research shows that market makers often hedge 0DTE risk intraday, reducing longer-term price impact.
  • Broader volatility often stems from macro factors like rates, liquidity, and policy—not just options flow.
  • Behavioral narratives around 0DTE may exaggerate their systemic influence.

What Are Zero-Day Options and Why the Hype?

Zero-day options are contracts that expire the same day they’re traded. They’re often used for intraday speculation or tactical hedging. Because of their short time horizon and high gamma (rate of delta change), they can quickly amplify small index moves—at least in theory.

According to Cboe’s 0DTEs Decoded report, SPX zero-day options averaged nearly 2 million contracts per day in early 2025, with retail traders accounting for 50–60% of that volume—driven in part by new algorithmic platforms. Cboe first introduced daily expirations for SPX and QQQ in 2022, multiplying tactical trading opportunities across the week.

But popularity isn’t the same as impact. To understand that, it’s worth examining how 0DTE trading intersects with market structure.

Theory vs Behavior: Are 0DTE Traders Actually Moving the Market?

Hypothetical: Imagine a scenario where a trader places a large bullish 0DTE call spread on the S&P 500. Market makers take the other side of the trade—and hedge by buying S&P futures. If the index rises, hedging accelerates. If it falls, that hedging may reverse, potentially creating intraday feedback loops.

This concept—known as gamma-driven hedging—is often cited as a cause of market swings. But recent data complicates the narrative.

  • According to Option Alpha’s analysis of 230,000 0DTE trades, the average position is closed with roughly 3 hours and 13 minutes remaining—meaning same-day expiration and minimal directional pressure.
  • The Cboe ‘Volatility Insights’ report emphasizes that, despite the large notional in 0DTE, market makers’ net exposure amounts to just 0.04 - 0.17% of daily S&P futures liquidity, with no lasting effect on volatility.

So what? While intraday positioning can affect momentary price moves, the broader impact appears transient. Macro shocks, not option flows, still dominate multi-day volatility.

The Macro Context Behind Volatility

During the 2022–2023 Fed rate-hiking cycle, stocks, bonds, and crypto all saw simultaneous declines. Volatility rose—but so did uncertainty around inflation, policy, and liquidity. It’s no coincidence.

Historically, the most extreme volatility events—such as the financial crisis of late 2008, when the VIX closed at 80.86 on November 20, and the COVID-19 crash, when it peaked at 82.69 on March 16, 2020—were driven by fundamental stress, not by same-day options trading. Blaming 0DTE options for every spike may overlook the more systemic causes:

  • Sudden changes in Fed policy expectations
  • Illiquidity during off-peak hours
  • Quant fund de-risking or rebalancing
  • Economic data surprises

These drivers affect all asset classes—not just options—and often precede volatility, not follow it.

Why the Narrative Persisted

Zero-day options make an easy headline. Their mechanics are complex, their volume is growing fast, and they appeal to both day traders and hedge funds. That makes them ripe for behavioral misattribution.

Many investors experience volatility viscerally. When a market swing coincides with a rise in 0DTE trades, it’s tempting to draw a straight line between the two—even when the data doesn’t support it. This is known as narrative bias: overemphasizing a visible factor while underweighting systemic ones.

Building on that idea: Even if 0DTE options occasionally accelerate intraday moves, their effects may cancel out or revert quickly, especially when offset by market maker hedging.

A Smarter Takeaway for Investors

Traders may view zero-day options as high-octane tools. But for long-term investors, the real question isn’t whether these tools exist—it’s whether they pose a lasting threat to market stability.

So far, the evidence suggests they don’t. Volatility tends to track fundamentals: monetary policy, earnings surprises, global events. Those signals carry more weight than speculative flows—no matter how fast they move.

How to Stay Grounded Amid Intraday Volatility

Most investors don’t need to monitor 0DTE activity—or intraday market noise—to stay on track. A more durable approach may involve:

  • Ignoring minute-by-minute price action
  • Focusing on fundamentals and multi-quarter trends
  • Rebalancing based on long-term goals, not headlines

These principles remain consistent regardless of trading fads. Volatility may spike, but staying grounded can keep long-term plans intact.

0DTE Options — FAQs

Why do some market participants associate 0DTE with volatility?
Because 0DTE trading often coincides with intraday swings, some attribute volatility to these flows, even when macroeconomic factors play a larger role.
Which macro drivers more commonly affect multi-day volatility?
Sudden shifts in monetary policy, liquidity changes, quantitative fund positioning, and economic data releases have historically been larger contributors.
Why are zero-day options described as high gamma instruments?
Their sensitivity to underlying index changes is elevated, meaning small price shifts can result in large swings in option value within very short timeframes.
How do market makers generally manage 0DTE exposure?
They hedge intraday using futures or related instruments, which tends to reduce the persistence of directional impact beyond the same session.
What behavioral factor may exaggerate concerns about 0DTE?
Narrative bias can cause investors to over-attribute volatility to 0DTE contracts when broader systemic events are also influencing markets.
Why do 0DTE options appeal to certain traders?
Their short lifespan allows for tactical speculation or hedging on intraday moves, which some traders favor despite heightened sensitivity to price swings.
What is the broader takeaway for long-term investors?
While 0DTE contracts can affect intraday trading, evidence suggests multi-day volatility continues to be driven mainly by fundamentals such as earnings, policy, and global events.
How did the 2022–2023 rate-hiking cycle affect volatility?
During that period, stocks, bonds, and crypto declined together, with volatility rising alongside concerns over inflation, liquidity, and policy uncertainty.
How long do most 0DTE positions remain open before expiry?
The average holding time is reported at just over three hours before expiration, indicating that positions are typically closed well before the end of the trading day.
What is gamma-driven hedging in the context of 0DTE?
Gamma-driven hedging occurs when market makers offset exposure by trading futures as prices shift, which can influence intraday moves but usually reverts quickly.