(FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.)
Zero-day-to-expiration options are no longer a niche segment of the equity derivatives market. From volatility pricing to dealer positioning, the influence of same-day options is being felt far beyond their notional size. The focus is shifting toward how 0DTE activity is impacting liquidity, risk management practices, and the underlying mechanics of price discovery across asset classes.
Amit Deshpande, Head of Fixed Income Quantitative Investments at T. Rowe Price, views the rise of 0DTE options as a structural evolution in market dynamics. Deshpande monitors the 0DTE space closely—not to engage in daily trading, but to better understand its broader implications. “We follow the market not only to analyze the activity itself, but more importantly to assess its effects on gamma markets, volatility surfaces, and the spot market,” he explained. He is less concerned with direct exposure and more focused on the structural signals embedded in the 0DTE market, particularly how they inform the behavior of volatility across expiries.
Over recent years, Deshpande has observed a migration of flows from traditional term volatility markets into the front end of the curve. This shift has caused a structural flattening—and in some instances, inversion—of the implied volatility curve. “We’re seeing near-term volatility trade at persistently elevated levels,” he said. “This isn’t a temporary anomaly. It reflects a durable change in how participants are positioning and managing risk.” He added that unless there is a material change in participant behavior, these conditions are unlikely to revert.
This viewpoint is echoed by Mandy Xu, Head of Derivatives Market Intelligence at Cboe Global Markets, who has also tracked the rapid institutionalization of 0DTE trading. “Institutional volume in SPX 0DTE options has almost doubled over the past two years,” Xu said, noting that average daily volume (ADV) grew from 479,000 contracts in Q1 2023 to 820,000 in Q1 2025. “Institutional traders now make up an estimated 40–50% of total SPX 0DTE flow.”
Xu added that institutional activity tends to concentrate around the market open—nearly 20% of opening trades occur in the first 30 minutes—whereas retail flows tend to show a “U-shaped” pattern, peaking both early and late in the day. This difference in trading profiles has notable implications for intraday liquidity and price discovery.
One area of growing importance, Deshpande noted, is dealer positioning. While dealers generally hedge their exposures on a delta and gamma basis, the notional volume in the 0DTE space presents a unique challenge. “Despite delta-gamma neutrality, the market is underhedged on a notional basis due to the sheer size of these exposures,” he explained. This creates a heightened sensitivity in the underlying markets, where dealer positioning can amplify or dampen price movements. Deshpande pointed to the concept of the gamma exposure curve, which can signal where dealers may flip from net long to net short gamma—a shift that can materially affect market stability. For instance, when dealers are net short gamma, volatility tends to accelerate, exacerbating directional moves.
Cboe’s Xu confirmed this growing institutional responsiveness during periods of market stress. “We see increased 0DTE trading from institutional investors during high-volatility episodes,” she said. “These options provide a cost-effective way to hedge and manage risk in other parts of their portfolio, and institutional share of trading actually rises during these times.”
T. Rowe Price integrates these insights into its investment process. Deshpande noted that, compared to three years ago, 0DTE dynamics now play a significantly larger role in shaping both directional views and relative value decisions. “These options have altered the historical relationship between volatility and market direction,” he said. “We’ve had to adapt to a more technical and less fundamentally anchored market environment.”
While the increased volatility and dispersion may present challenges, Deshpande views them as ultimately additive for a firm with strong research capabilities. “Volatility creates opportunity. When short-term technical flows push markets away from fundamental value, our platform is well-positioned to take advantage.” Even without direct participation in the 0DTE market, the information content and structural impact of these instruments provide actionable signals across asset classes.
Xu noted that the buy-side is not just reacting to the 0DTE environment—they’re helping shape it. “We continue to see strong demand for data as clients develop new 0DTE strategies,” she said. “Customers want to see volume broken down by origin, direction, and whether trades are opening or closing.” This appetite for granular transparency is influencing product development and analytics support from exchanges like Cboe.
Deshpande expects buy-side engagement in this area to continue expanding, albeit in nuanced ways. Most direct activity remains the domain of speculative or event-driven strategies. However, institutional investors increasingly monitor 0DTE activity for its indirect effects. “There is substantial capital—ours included—seeking to understand the second-order impacts of these flows on broader portfolios,” he said. “We anticipate our involvement will deepen, particularly in terms of research and portfolio positioning.”
Xu agrees that the influence of institutional flows is only set to grow. “Institutional volume will continue to play an important role in any product or market structure innovation,” she said. “As the market evolves, we’re routinely conversing with clients to better understand their needs and educate them on the benefits of short-dated index options.”
Regarding regulatory oversight, Deshpande does not foresee major intervention. He argues that 0DTE options do not introduce novel risks. Rather, they represent a reallocation of existing risk from longer-dated expiries to intraday horizons. “The structural framework is unchanged,” he explained. “Most exposures are closed or hedged well before expiration, and the intrinsic short duration of these instruments limits their systemic impact.” He acknowledges that regulators are monitoring developments but supports the current measured approach.
