According to the Zhitong Finance APP, since &#34;Liberation Day,&#34; the intense intraday fluctuations in the stock market have made investors more anxious than ever, partly due to the popularity of zero-day-to-expiration options. Data from JPMorgan Chase shows that in April, the trading volume of zero-day-to-expiration (0DTE) options linked to the S&amp;P 500 index surged to 8.5 million contracts, a 23% increase from the beginning of the year, accounting for about 7% of the total trading volume in the U.S. options market. These &#34;same-day&#34; contracts act like financial fast food, providing investors with quick profit opportunities while also becoming a popular tool for hedging against sudden risks (such as the erratic tariff policies of the Trump administration).Zero-day-to-expiration options refer to contracts that expire on the day of trading. These options typically expire and become invalid on the same trading day, hence they are also known as &#34;intraday options&#34; or &#34;24-hour options.&#34; The characteristics of zero-day-to-expiration options include their extremely short trading cycle and high leverage effect, allowing investors to achieve significant returns in a short period, but also amplifying their risks.&#34;It's like adding an amplifier to market volatility,&#34; vividly pointed out Jeff Kilburg, head of KKM Financial, noting that traders frequently buy and sell the underlying assets to hedge their options positions, akin to adding fuel to an already boiling pot of oil. He warned that this short-term speculative tool was rarely seen a decade ago, but has now become a catalyst for increased volatility.As Trump imposed high tariffs on major trading partners of the U.S. and repeatedly overturned and changed his own policies, market volatility soared. Last Wednesday, the S&amp;P 500 index recorded its third-largest increase since World War II, following a four-day plunge that briefly pushed it into bear market territory. Last week, the Dow Jones Industrial Average also fell by at least 1,500 points for two consecutive days, marking a historical first.According to data from the Chicago Board Options Exchange Global Markets, the intraday volatility of the S&amp;P 500 index nearly doubled last week, reaching 44%, surpassing the highs of 2020, and currently approaching levels seen during the peak of the 2008 financial crisis. This extreme uncertainty has stimulated demand for zero-day-to-expiration options, as investors seek to hedge risks and capitalize on volatility.Maxwell Grinakov, head of U.S. equity derivatives research at UBS, stated in a report: &#34;We find that zero-day-to-expiration options and one-day-to-expiration options play a significant role in driving increased intraday volatility, and the increase in intraday volatility may not necessarily be reflected in the closing prices.&#34;Retail investors easily enter the market through platforms like Robinhood, further democratizing this options frenzy. Options are contracts that give holders the right, but not the obligation, to buy or sell a specific quantity of the underlying asset at a predetermined price (the strike price) on a specific date.Kilburg noted: &#34;For decades, options have been an institutional tool, and the maturity of retail investors has enabled more people to use options for hedging or simple speculation.&#34;The rise of zero-day-to-expiration options has sparked intense debate on Wall Street, with the focus on whether this popular trading tool could potentially impact or even disrupt the structure of the U.S. stock market. Many analysts believe that zero-day-to-expiration options are becoming a ticking time bomb embedded in the market, ticking ominously over Wall StreetIt is worth mentioning that the rapid popularity of zero-day-to-expiration options coincides with a shift in market conditions. Over the past two weeks, S&amp;P 500 futures have erased at least 0.9% of gains on different trading days, disrupting the index's upward momentum of a 28% rise over the past 10 months.Charlie McElligott, a cross-asset strategist at Nomura Securities, stated that intraday sell-offs &#34;have driven a change in the zero-day-to-expiration options space, which is different from what we saw during the stock market rebound. Zero-day-to-expiration options trading is a perfect tool for environments characterized by volatility, range-bound movements, or overreactions. However, it also fuels such market turbulence.&#34;Meanwhile, this dynamic is driven by market makers, who are the counterparties in options trading and need to buy and sell stocks to maintain a neutral position, a process known as gamma hedging. Recently, they have shifted to a &#34;short gamma&#34; position, which forces them to align with current market trends, selling stocks when prices fall and vice versa.Theoretically, this could have a significant impact on the broader market when zero-day-to-expiration options trading surges. Given the recent shift of traders buying put options, this could exacerbate intraday sell-offs. However, once these positions expire near the close, market makers may need to unwind their hedges, potentially driving the stock market higher

.DJI

Since the "Liberation Day," the volatility of the U.S. stock market has intensified, and the trading volume of zero-day-to-expiration options has significantly increased, becoming a popular tool for investors to hedge risks. JP Morgan data shows that in April, the trading volume of zero-day-to-expiration options linked to the S&P 500 index reached 8.5 million contracts, a 23% increase from the beginning of the year. The high leverage effect of these short-term contracts allows investors to achieve high returns in a short period, but it also increases the risk. Market volatility has surged due to the tariff policies of the Trump administration, leading to severe fluctuations in the S&P 500 index and the Dow Jones Industrial Average

- Since "Liberation Day," the stock market has experienced significant volatility, partly due to the rise of zero-day-to-expiration (0DTE) options, which surged to 8.5 million contracts in April, a 23% increase from the start of the year.  
- These options, which expire on the same day they are traded, provide quick profit opportunities but also amplify risks, contributing to market fluctuations amid uncertainties like changing tariffs from the Trump administration.  
- Analysts warn that the growing popularity of 0DTE options could destabilize the U.S. stock market, as they are increasingly used by retail investors and market makers, potentially leading to significant impacts on market dynamics.

Zhitong

Tariffs "ignite" zero-day options "fuel," will the US stock market's roller coaster continue?