Short-term Expiry
Zero (0) Day Option⌛ is all the rage in the financial market.
Last updated
Zero (0) Day Option⌛ is all the rage in the financial market.
Last updated
0DTE (Zero-Day-to-Expiry) option, a form of short-dated Options, is an option with less than 24 hours until expiry. With the 0DTE option, traders can narrow down to a very specific range of time for market prediction while getting instant results.
0DTE has surged in the S&P500 options market in 2023, with its trading volume taking up to 50%+ market share of the total option market.
0DTE options (& short-term options in general) are fundamentally used by short-term hedgers who want to lock in the price of their underlying asset for a certain period (=buying insurance for particular days only), at a lower cost.
For example (with arbitrary numbers for exhibition purposes only), an ETH investor who is worried about the FED announcement overnight can hedge the ETH price movement by buying an 0DTE option at a cheaper premium than that of a 7-day option.
However, the volatility of the 0DTE option is usually higher than the volatility of the 7-day option, which means it costs more for the buyers due to their natural demands mixed with speculators seeking high leverage and instantaneous results.
As such, in 2023's TradFi, SPX 0DTE implied vol typically trades 10-15 vol points above longer-term implied vol and with an embedded vol risk premium (VRP) 2.5x larger.
This trend in the stock options market has been fueled by both retail and algorithmic traders who trade with high frequency. Also, the introduction of new 0DTE option products helped to boost the trading volume of 0DTE options.
Whether it's spot or derivative, traders in the crypto market have a shorter period when investing in crypto than in traditional assets such as stock. This gives stVol more reason to focus on providing short-term expiry options, especially the 0DTE option, to retail crypto degens.
