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0DTE Options Volume Bigger Than Ever: Why Traders Prefer OTM Now

Last week, the three major indices all closed with weekly gain. $DJIA(.DJI)$   rose 1.2%, $S&P 500(.SPX)$   gained 0.51%, and $NASDAQ(.IXIC)$   increased by 0.17%. The latter two avoided a fifth consecutive week of declines. Despite highly anticipated unveiling of its robots and new AI chips at GTC, $NVIDIA Corp(NVDA)$   disapointed the market and closed the week with a 3.26% decline. Recently, the trading volume of zero-day-to-expiry (0DTE) options saw a big increase amid tariff uncertainties and market fluctuations. 

Why 0DTE Options Trading is Growing So Fast

In the first two weeks of March, the trading volume of zero-day-to-expire(0DTE) options of the S&P 500, including both SPX index $S&P 500 Index (.SPX.US)$ and SPY ETF $SPDR S&P 500 ETF (SPY.US)$ , has hit record highs. The combined nominal risk exposure of the S&P 500 0DTE options reached USD$1.5 trillion daily and trading volumes soar to 6.6 million contracts, representing a significant increase of 73% YoY and 39% MoM. This surge is mainly due to:

1. Increased market volatility: The Trump administration's frequently adjusted tariff policies have caused stock market fluctuations, increasing short-term hedging needs. Important economic indicators like Fed Rate decisions, inflation and jobs data releases have increased expectations for short-term volatility. In response, traders are turning to 0DTE options as a low-cost way to capitalize on or protect against these market changes without the risk of holding positions overnight.

2. Expanded broker channels: The surge in 0DTE options trading is also fueled by increased participation from retail investors, facilitated by platforms like moomoo and Robinhood. More brokers have expanded access to 0DTE trading to broader customers in recent years, lowering entry barriers and making more participants to the options market.

Why Traders Love OTM Options Now

The recent surge in 0DTE trading is mainly driven by the increased activity in OTM options (Out-of-the-money options refers that for call(put) options, the strike price is above(below) current market price of the underlying assets). As of mid-March, 92% of the SPY ETF options trading increase came from OTM options trading, with call options going up 99% YoY and put options increasing by 71%.

From the latest data on SPY options open interest expiring on March 24, 2025, the total open interest is 208.29K, with puts accounting for 110.13K and calls for 98.16K, which indicates a slightly bearish or defensive sentiment. Notably, 90% of open interest are OTM, with 92.72K calls and 95.31K puts. This substantial OTM activity aligns with the volatility skew dynamics: the 25-Delta Put IV currently exceeds the 25-Delta Call IV by +4.7%, a spread that surpasses the 250-day average (+3.7%), suggesting investors are willing to pay more premiums for put options to secure downside risk.

OTM contracts are like lottery tickets: they’re cheap and risky, but they offer explosive upside if the market moves sharply in your favor. As traders navigate the unpredictable market landscape, driven by tariff changes and economic data releases, OTM 0DTE options have emerged as a preferred strategy for several reasons:

1. Cost effective: OTM options, which are popular in 0DTE trading, are cheaper and offer potential for high returns in volatile markets on short-term market catalysts with a lower capital requirement. This makes them accessible to a wider range of traders, including those with smaller accounts.

2. Managing risk with limited exposure: One of the biggest advantages of 0DTE options is that they eliminate overnight risk. Traders can enter and exit positions within the same trading day, avoiding the uncertainty that can arise from events occurring outside market hours.The maximum loss is capped at the premium paid for the OTM option, providing a clear risk profile

3. Events-driven strategy: Traders can craft strategies specifically targeting the anticipated volatility spikes around macro events. For instance, during FOMC announcements, traders might long(short) OTM strangles to bet on large(low) market volatility without predicting the direction. JP Morgan highlights that macro events come with distinctive risk premiums, offering unique trading opportunities. Since 2022, the increasing popularity of 0DTE and short-dated options has enabled traders to effectively isolate and evaluate these premiums.

The current trend towards 0DTE and OTM options is not just a reflection of market volatility but also an indication of evolving trading strategies. Whether you're a seasoned investor or a newcomer, 0DTE options offer a capital-efficient tool to manage risk and capitalize on market opportunities amid market swings. Looking ahead, the continued growth in 0DTE options volume suggests that traders will increasingly rely on these instruments to leverage short-term opportunities.

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