The S&P 500 has been rattled by a weeks-long shake-up of major intraday volatility, lifting that measure almost in half to a sky-high 44% last week. This increase in volatility goes beyond the peaks experienced during 2020 and approaches levels seen during the 2008 financial crisis. Cboe Global Markets data underscores this trend. Today’s economic uncertainties are driving new conversations among investors as they navigate significant market shifts.
One of the most impactful changes to the trading landscape has been the rapid rise of zero-day-to-expiration (0DTE) options. These contracts, expiring the same day they are traded, have fueled an even larger portion of market activity. In April, trading volume for these options tied to the S&P 500 soared to 8.5 million contracts. This aspiring milestone accounted for nearly 7% of the total volume in U.S. option markets. Notably, the trading volume of 0DTE options has jumped 23% since the start of the year, according to data from JPMorgan.
This week’s volatility is especially stark after what analysts are calling “liberation day,” indicative of all-time market volatility. Wild intraday gyrations in stock prices have investors so rattled they’re jumping ship. In fact, the Dow Jones Industrial Average crashed more than 1,500 points on back-to-back days—an unprecedented event in history. The S&P 500 dipped briefly into bear market territory following its four-day drop. Then it came roaring back, having its third-largest gain in post-World War II history.
Some experts argue that the increasing prevalence of 0DTE options is exacerbating market volatility. Jeff Kilburg, CEO and CIO of KKM Financial, commented on this phenomenon:
“You’re seeing the zero data options market amplify and exaggerate almost up or down. If you go back 10, 20 years, you didn’t have these catalysts.”
Kilburg further explained the effect these options have, comparing their influence on market volatility to “gasoline on a fire.” He highlighted that sudden market shifts are increasingly the norm. Additionally, factors such as the increasing sophistication of retail investors who are increasingly getting into options trading have contributed to this.
As more retail investors use options to hedge or speculate, the market’s behavior can change. Kilburg noted:
“Options have been an institutional tool for decades now, and the sophistication of retail investors is allowing more and more people to utilize options to hedge or to simply speculate.”
Surging investor behavior against the backdrop of these tools has created a recipe for a swift and sometimes volatile trading environment. The recent spikes in intraday volatility are indicative of larger issues with market stability as traders continue to adjust in this unprecedented environment.
Market analysts are closely watching these developments, as they can be harbingers of much greater seismic shifts within the financial ecosystem. Investors are advised to remain vigilant and informed about how such tools can influence their portfolios and broader market movements.
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