Same-Day Options, Same-Day Alpha? Institutional Lessons from 0-DTE’s Boom

From weekly curiosities to the default playground

Until quite recently, the idea of an option that expired within the same trading day was considered an exotic corner of the derivatives world. But that has changed dramatically. Zero-day-to-expiry contracts — or 0-DTE options — have become one of the most intensively traded instruments in the equity index landscape. Their defining characteristic is brutally simple: they live and die on the same calendar day. Initially, options expiries were available only on Mondays, Wednesdays, and Fridays. But in 2022, the CBOE introduced a full suite of daily S&P 500 expiries, and that changed the game. When exchanges moved from weekly to daily—and now same-day—expiries on S&P 500 index options, the maturity ladder that traders look at literally shrank from discrete steps (one week, two weeks, one month, two months …) to a near-continuum of strikes all expiring within the same trading day. The effect resembled adding a same‑day settlement window to FX markets: once traders realized the instrument could be recycled every afternoon, volume snowballed

Retail traders were the first to seize the opportunity. Accustomed to rapid-fire trades via apps like Robin Hood, they embraced 0-DTEs as a low-cost, high-conviction expression of market views. These traders already understood options basics, thanks to years of Reddit forums and YouTube explainers. Institutions were slower to follow, hamstrung by systems and mandates that weren’t built for positions with zero overnight risk. But by 2024, the landscape had shifted. Spreads narrowed. Execution quality improved. And large, systematic funds began building scalable workflows around these contracts. What started as a niche experiment had, in the space of two years, become a default tool.

Source: CBOE, Bloomberg; data till May 2025

0-DTE mechanics

Despite the buzz, a 0-DTE option is structurally indistinguishable from any standard index option. It has a strike price, a premium paid upfront, and a payout tied to the official 4:00 p.m. closing value of the S&P 500 index. There is no physical delivery of shares — it’s a cash-settled contract. But its lifecycle is compressed into hours, not days or weeks. That brevity changes how traders think about risk. Vega, which captures sensitivity to implied volatility, plays a diminished role because there’s no time for volatility to evolve. Instead, traders focus on gamma and theta.

Gamma measures how rapidly the option’s delta (its exposure to the underlying index) changes as prices move. Theta represents the time decay: the steady erosion of the option’s value as the clock ticks. In a 0-DTE contract, gamma can become enormous and whip-fast, while theta bleeds value almost instantly. The result is a contract that can behave like a precision scalpel in the right hands — or a landmine in the wrong ones. This dynamic gives 0-DTEs their unique character and their peril.

Why the volume exploded

Because strikes are now listed, traded and settled within hours, dealers can adjust hedges constantly and new orders immediately find counterparties. Turnover rises, bid–ask spreads narrow, and the order book feels fluid with fills possible in milliseconds. Institutional traders wanted pin-point tools to hedge Fed-day, CPI-release or earnings-gap risk without paying for unnecessary time-value, so they pleaded with the SEC to complete the daily ladder. Market-makers and some high-frequency funds thrive on short-gamma inventory that can be delta-hedged in minutes. The term (time-to-expiry) dimension that once required days or weeks to move along is now traversed in hours, even minutes, producing a curve that looks dense and nearly smooth.

Thus, the explosion in 0-DTE trading was not a coincidence — it was the result of several powerful forces acting in concert. First, trading costs dropped to near-zero. Retail brokers eliminated commissions, and institutional desks began routing more orders internally, reducing exchange fees. Second, the contract size of 0-DTEs is small relative to full index futures, making them ideal as building blocks for fine-grained hedging. Third, there was a narrative. On social media and finance blogs, traders began circulating the idea that "dealer gamma" was amplifying market moves: that market-makers, forced to hedge their exposure dynamically, were buying into rallies and selling into dips, thereby exacerbating intraday momentum.

While this narrative simplifies reality, it caught fire. Liquidity followed attention, and once the instruments reached critical mass, they became self-sustaining. Institutional players began to recognize that these flows were affecting microstructure — whether or not they agreed with the internet theories. As a result, both speculative and hedging volume flooded into the space. The 0-DTE contract became not just an edge-case trade, but a routine part of intraday strategies.

Separating myth from microstructure

There is a grain of truth in the popular stories about dealer gamma. Option market-makers hedge their books in real time. If a rush of 0-DTE call buying hits the market, dealers may need to buy futures to offset their exposure. But this is not a one-way street. Dealers might simultaneously hold offsetting gamma at other strikes or maturities, and their aggregate position evolves hour by hour. Data from exchanges show that close-to-close volatility — the kind investors actually realize — has not significantly increased since the advent of 0-DTE contracts.

What has changed is behavior around the close. The final thirty minutes of the trading day can feel artificially stable or strangely pinned. This is because hedging flows often converge toward the settlement price, especially on days with outsized open interest, such as monthly or quarterly expirations. Even so, these effects are episodic rather than persistent. The market is not being routinely manipulated by gamma flows. Rather, it is reacting to a new cadence of liquidity and hedging pressure that has simply never existed in this form before.

How professionals wield the instrument

Professional traders use 0-DTEs to capture or neutralize very specific intraday risks. One common use case is intraday premium harvesting. Here, traders sell short-dated strangles at the open—betting that the market will stay within a defined range—and hedge the position throughout the day to protect against large moves. This strategy relies on capturing theta decay faster than market volatility can damage the position.

Other desks use 0-DTEs as targeted convexity tools. If a macro catalyst — like a Federal Reserve decision or a CPI print — is scheduled for 2:00 p.m., traders might buy tight out-of-the-money options at 1:45, knowing that implied volatility has dropped and that realized volatility is likely to spike during the announcement. The goal is not to guess direction, but to exploit the shape of the implied-volatility surface.

Market-makers also engage heavily, quoting both sides of the spread and adjusting rapidly as flow hits the tape. Their edge comes from speed and from pricing efficiency, but they must manage inventory risks that can swing violently if a flood of retail demand hits one side of the book. A more recent development is the use of calendar spreads and other relative-value trades that exploit pricing discrepancies between today’s expiry and tomorrow’s. These trades are less directional and more focused on the structure of the vol surface.

Risk and operational plumbing

The risks in 0-DTE trading are less about exotic math and more about plumbing. The mechanics of quoting, hedging, and clearing become critical when options reprice in milliseconds. If a pricing engine is delayed by even a few milliseconds, it can post stale quotes into an order book that is moving in real time. The cost of this slippage can be substantial.

Then there is gap risk. Although the official expiry is 4:00 p.m., most clearing firms require traders to be flat by 3:45 to reduce end-of-day chaos. That final fifteen minutes becomes a danger zone. If news breaks, an option can double or vanish in seconds. Traders must either liquidate early, hedge with futures, or accept the overnight jump risk — a hard call in fast-moving markets.

Risk models also need to evolve. Traditional Black-Scholes models, calibrated to daily data, underestimate the frequency and severity of intraday price swings. Risk teams now look to realized volatility distributions measured in five-minute or even one-minute intervals. Back tests are being stress-tested against episodes like the August 2024 CPI release, when the S&P 500 gapped nearly two percent in fifteen minutes. It is no longer enough to model volatility in calendar terms — you must model it in clock-time.

What allocators should ask

For allocators, the rise of 0-DTE strategies poses both an opportunity and a challenge. The key is understanding what kind of edge the manager is claiming. If the alpha comes from harvesting intraday risk premia, then the allocator should ask whether this edge persists after accounting for transaction costs, spread slippage, and capacity constraints. If the strategy relies on exploiting crowd behavior or retail order flow, they should ask how durable that edge will be in a world of copycats and evolving retail platforms.

Allocators should also pay close attention to how these trades interact with the rest of the book. Many intraday strategies bleed theta in exchange for convexity. Are those losses being offset elsewhere? Is the 0-DTE exposure being cross-hedged with longer-dated volatility? These questions go beyond strategy returns and speak to portfolio construction, drawdown profiles, and risk budgeting.

The road ahead

Zero-day options have shortened the distance between conviction and execution. What used to be a week-long expression of a view can now be entered and exited over lunch. That flexibility has transformed not only retail speculation but also institutional hedging and market-making. As liquidity continues to deepen and similar contracts emerge on sector ETFs and single stocks, the intraday volatility surface is poised to become a core component of modern portfolios.

Understanding 0-DTE dynamics is no longer optional. For some managers, it will be a source of alpha. For others, a source of unintended exposure. Either way, the rise of same-day options can no longer be ignored.