While some investors position for AI earnings, geopolitics and interest rates to send stocks to new highs or into a tailspin, zero-day option traders have increasingly bet that the S&P 500 Index will remain calm. An analysis of 0DTE options flow from UBS Group AG derivatives strategist Kieran Diamond shows a marked shift toward tactical traders buying calls and selling puts when the market declines, and doing the opposite during rallies.
The net effect of what they term a "counter-trend delta bias" is the equivalent of buying low and selling high, which further suppresses swings on the S&P 500. Zero-day to expiry options have taken on an outsized importance in the daily moves of the equities gauge, with around 66% of the overall volume expiring within a day, according to Garrett De Simone at Option Metrics. That has increased the focus on short-term positioning as both retail and institutional traders seek insight into how options flows are influencing the $66 trillion US benchmark index.
"This counter-trend trading pattern seems to be a response to very rangebound markets," said Diamond. "The magnitude of these options flows means that this can start to look self-fulfilling, with options investors helping to limit price moves in either direction."
This intraday tactical shift since 2024 is notable, with larger volumes trading on smaller moves, helping limit S&P 500 realized volatility. However, the pattern could change if the market has an extended selloff, beyond the AI-focused declines that pushed the S&P 500 down 1.2% on Thursday. In technology, short-term trading has had the opposite effect, giving rise to intraday momentum strategies in which flows tend to exacerbate rallies and declines.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing