When Did 0DTE Options Start? A Look at Their Origins
Discover the fascinating origins and historical evolution of 0DTE options, tracing their path to becoming a mainstream trading tool.
Options contracts, long a tool for managing financial risk and speculating on market movements, have evolved significantly. A notable development is the emergence of zero days to expiration (0DTE) options. These instruments have reshaped how many market participants engage with underlying assets, leading to interest in their origins and prominence.
Defining 0DTE Options
Zero days to expiration (0DTE) options are financial contracts traded and expiring on the same trading day. Unlike traditional options with weeks or months until their expiration, these contracts have an extremely short lifespan, concluding by the close of the trading session. Their value is highly sensitive to immediate price movements of the underlying asset.
These options are cash-settled, particularly for index options like the S&P 500 Index (SPX). This means that upon expiration, any gains or losses are exchanged in cash rather than through physical delivery. While any option technically becomes a “0DTE” on its final trading day, the term primarily refers to options specifically listed by exchanges with daily expiration cycles, designed for same-day trading activity.
Historical Precursors to Daily Options
The concept of options with short maturities evolved gradually. For many years, most listed options had monthly expiration dates. The demand for more granular exposure to market events and greater flexibility in trading strategies began to grow.
A significant step towards shorter-dated options came with the introduction of weekly options. The Chicago Board Options Exchange (CBOE) launched weekly options in 2005. These weekly contracts expire on Fridays, providing market participants with more frequent opportunities to adjust their positions or capitalize on short-term market movements. This innovation allowed for strategies that could target specific news events or economic data releases, paving the way for even shorter expiration cycles.
The Emergence of 0DTE Trading
The emergence of 0DTE options trading began with the expansion of daily expiration cycles on major index products. The CBOE introduced S&P 500 Index (SPX) options in 1983, initially with monthly expirations. Building on the success of weekly options, the CBOE started adding more frequent SPX expiration dates.
In 2016, the CBOE launched Wednesday-expiring SPX Weeklys, followed by Monday Weeklys. This expansion continued, and by 2022, the CBOE had listed SPX Weeklys options with an expiration for each day of the trading week, from Monday through Friday. This included Tuesday and Thursday expirations for SPX and Mini-S&P 500 Index (XSP) options, making daily expirations available across the entire week for these key indices.
Technological advancements played a significant role in enabling the widespread adoption of ultra-short-dated options. Improvements in electronic trading platforms, increased data processing speeds, and enhanced connectivity allowed for efficient execution and management of high-volume contracts. This technological infrastructure made it feasible for both institutional and retail traders to engage with these instruments on a large scale. These developments and growing market interest led to a dramatic increase in 0DTE options trading volume, particularly on the SPX. By 2023, 0DTE SPX options accounted for approximately 43% of average daily volume, and by late 2024, this share surpassed 50% of the total SPX options volume.