LIVE MARKETS-0DTE options heat up as equity volatility soars

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0DTE OPTIONS HEAT UP AS EQUITY VOLATILITY SOARS

Both trading volumes and prices of same-day expiry options contracts for the S&P 500 have jumped as a barrage of U.S. tariff policy uncertainty and economic worries have seen equity markets at their most volatile in months.

Volumes of zero-days-to-expiry (0DTE) S&P 500 options have averaged around $1.2 trillion of notional volume per day for the past 10 trading days, according to research firm Asym 500. They've also made up a record 56% of overall index option volume for the benchmark index.

That's occurred as intraday volatility has soared. Intraday S&P 500 moves have exceeded overnight moves by the largest extent in over two years, as per Asym 500, with multiple 2% or more intraday selloffs this year.

Monday marked another such selloff, with the S&P 500 .SPX currently down over 2% and on course for its worst day this year.

With the constant swirl of headlines, it's no surprise investors want some protection from intraday moves - but the prevalence of these options might be making volatility worse, says Rocky Fishman, founder of Asym 500.

"We continue to wonder if positive 0DTE-buying performance has drawn more directional option-buyers into the 0DTE market ... if so, the short gamma they produce has the potential to contribute to further outsized intraday moves."

The swings have also sent prices for 0DTE contracts sharply higher. Prices of 0DTE straddles purchased at 9:45 am ET were averaging less than 0.4% in February, but have averaged more than 1% in the past 10 days.

For a strategy buying the same number of 0DTE straddles on the S&P 500 each day at that time, returns are negative in March to date because of that rise in prices.

The VIX .VIX, meanwhile, has jumped to its highest since December 18 at 27.12.

A VIX level of 25 points or higher implies around a 19% probability of an economic recession, Societe Generale analysts said in a note, versus a long-term average of 11%.

(Lisa Mattackal)

FOR MONDAY'S EARLIER LIVE MARKETS POSTS:

GIVEN TARIFF WAR, BE MORE TACTICAL, SAYS CROSSMARK GLOBAL- CLICK HERE

TIGHTENING THEIR PURSE STRINGS: CONSUMERS PUT THE BRAKES ON CREDIT BALANCE GROWTH - CLICK HERE

U.S. STOCKS SLUMP IN EARLY TRADE - CLICK HERE

S&P 500 INDEX: DOWNSIDE STILL BECKONS - CLICK HERE

WHEN COULD THE EURO'S RISE HURT EARNINGS? - CLICK HERE

GERMANY'S DEBT BRAKE REFORM: FAR FROM A DONE DEAL - CLICK HERE

BUYBACKS TO THE RESCUE? - CLICK HERE

"EUROZONE SHORT TERM LOOKS OVERBOUGHT" - CLICK HERE

VOLATILITY STAYS HIGH, STOXX DIPS - CLICK HERE

BEFORE THE BELL: EUROPEAN FUTURES BOUNCE BACK - CLICK HERE

TRUMP'S TARIFFS RAISE RECESSION RED FLAGS - CLICK HERE