Trading in trendy zero-day options contracts saw a sharp decline on Monday as a percentage of total activity, reflecting a resurgence in demand for longer-lasting hedges.
Trading volume in S&P 500-linked contracts expiring in 24 hours or less, known as “zero-days-to-expiration” or “0DTE” options, fell to 26% of total options volume on Monday as U.S. stocks saw their worst session in two years, according to data from OptionMetrics. For much of the past year, their share had hovered around 50%.
Also on Monday, the Cboe Volatility Index, or VIX, a gauge that reflects demand for longer-dated S&P 500 options, saw its biggest intraday jump on record, according to Dow Jones Market Data.
The data suggest that traders ditched shorter-term options for contracts offering longer-lasting protection. The shift is likely a reflection of the fact that the risks to the market from signs of an economic slowdown necessitate more long-term hedges, said Mike and Matt Thompson, co-portfolio managers at Little Harbor Advisors.
Zero-day options, on the other hand, are more effective as a tactical hedge against risks tied to specific events like economic data releases, Federal Reserve interest-rate decisions or corporate earnings reports.
The VIX finished north of 38 on Monday, its highest closing level since April 2020. But it briefly topped 65 at one point early in the session.
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