Market dynamics have changed since the COVID-19 pandemic, driven by several structural developments. One of the most notable has been the rapid growth of retail trading, particularly in short-dated options.
Reference [1] examines the impact of zero-days-to-expiration (0DTE) options on market dynamics using trade-level Cboe data for SPY, QQQ, and IWM options from 2012 to 2025. The study investigates how the introduction and expansion of 0DTE trading have altered option market behavior. The authors pointed out,
.. We find that the expansion of daily expirations is associated with a significant increase in ultra-short-dated (0–1DTE) trading, accompanied by evidence of maturity substitution away from both short-term (2–5DTE) and medium-term (6–30DTE) options. This shift is associated with a marked increase in directional trading intensity, particularly following Tuesday and Thursday expirations, as well as a rise in small trade activity consistent with increased retail participation. We also document a reflexive relationship between ultra-short-dated trading and directional behavior, suggesting that the growth of 0DTE options both reflects and reinforces speculative trading dynamics. We also find that the expansion of short-dated trading is associated with increased market maker intermediation, indicating greater hedging and liquidity provision demands in these markets. Additionally, we use ordinary least squares and instrumental variables regression strategies to estimate the relationship between expected volatility and increased trading volume in short-term (0–6DTE) options relative to long-term (≥7DTE) options. We find evidence that a higher percentage of short-term options volume is associated with a higher level of volatility expectations at a 30-day time horizon over our data period (2012–2024)...
In short, the paper concludes that weekly expirations have significantly increased 0–1DTE trading, shifting activity away from longer-dated options through a maturity-substitution effect. It also finds that directional trading and retail participation have increased, with 0DTE activity and directional trading reinforcing each other through a reflexive feedback mechanism. The paper shows that greater short-dated trading is associated with higher 30-day implied volatility and a flatter 7-day/30-day term structure.
These findings provide valuable insights into the evolving options market. The analysis of option trading activity by day of the week is particularly interesting as it may help explain the day-of-the-week seasonality observed in the options market.
Let us know what you think in the comments below or in the discussion forum.
References
[1] Dalvi, S., and LaFond, H., Effects of Weekly Option Introduction on Market Participant Behavior and Volatility Expectations. Working paper, 2026.
Post Source Here: How 0DTE Options Are Reshaping Market Dynamics
source https://harbourfronts.com/0dte-options-reshaping-market-dynamics/
