MW Tariff-fueled stock-market panic sparks options-trading frenzy as investors favor riskier contracts

By Joseph Adinolfi

Volume in S&P 500-linked contracts hit a record on Monday. Activity has been particularly intense in '0DTE' options, which some have likened to 'lottery tickets.'

Less than two months into his second term, President Donald Trump is already making stock-market volatility great again. That's been a boon for the options market.

As U.S. stocks have slumped, options-trading volumes have soared, according to data from Cboe Global Markets, a major U.S. options-exchange operator.

Investors have used the popular derivatives contracts to capitalize on wild swings in major stock-market indexes like the S&P 500 SPX and the Nasdaq-100 NDX, experts told MarketWatch.

Trading volume in S&P 500-linked options surpassed 4.8 million on Monday, the highest level on record, according to Cboe data. That was more than 50% higher than the daily average going back to the beginning of 2024, data showed. Contracts tied to the S&P 500 are among the most popular products in the market.

While activity has risen across the board, risky contracts that allow investors to speculate on intraday market swings have been especially popular lately.

Trading in so-called "zero-day to expiry," or "0DTE," contracts accounted for 56% of total activity in the S&P 500 complex in February, the largest share for any month on record, Cboe said. So far in March, they have accounted for 54% of total activity, still well above the average levels from 2024.

Meanwhile, on an absolute basis, data from Asym 500 showed that activity in the 0DTE space has never been higher. Contracts expiring at the end of the day have traded $1.2 trillion in notional value, on average, during the 10 days through Friday.

Some professionals have likened 0DTEs to "lottery tickets" due to their outsize payouts, and the fact that they're unlikely to wind up "in the money" - options-market parlance for a contract that can be exercised for a profit.

It's hardly surprising that options-trading volume has seen a notable pickup over the past month or so, said Rocky Fishman, founder of Asym 500.

Between Trump's haphazard approach to tariffs, mounting fears of a U.S. recession and creeping doubts about U.S. supremacy in artificial intelligence, investors have plenty of reasons to hedge their portfolios, and plenty of opportunities to try and use options to wring profits out of a falling market.

"When markets get volatile, people like trading options," Fishman said.

But as activity in 0DTEs has picked back up, Fishman and others have wondered to what degree these contracts might be driving volatility in the broader market. For years, sell-side strategists at major investment banks have speculated that heavy activity in 0DTE options could exacerbate intraday markets swings.

In other words, the tail would be wagging the dog.

"We continue to wonder if positive 0DTE-buying performance has drawn more directional option-buyers into the 0DTE market; if so, the short gamma they produce has the potential to contribute to further outsized intraday moves," Fishman said in a report shared with MarketWatch.

Being "short gamma" is options-industry jargon. It refers to a situation where options market-makers need to buy into rising markets, or sell into weakness, to properly hedge their options books. Market-makers typically buy stocks, futures or other options as hedges.

"It's definitely possible," said Garrett DeSimone, the head quant at OptionMetrics, when asked if 0DTE trading might be having an impact on the broader market. "But much of this news coincides with real macro uncertainty. My feeling is that 0DTE flows would be a secondary driver of volatility."

Activity in contracts tied to individual stocks has been rising lately as well, DeSimone said. Over the past 22 trading days, options tied to Nvidia Corp. $(NVDA)$, Tesla Inc. $(TSLA)$, Palantir Technologies Inc. (PLTR), Super Micro Computer Inc. $(SMCI)$ and Apple Inc. $(AAPL)$ have seen the most action, OptionMetrics data showed.

           Company Name         Average contracts traded 
   Nvidia Corp.                                 4,205,672 
   Tesla Inc.                                   2,699,788 
   Palantir Technologies Inc.                    1,223173 
   Super Micro Computer Inc.                      955,729 
   Apple Inc.                                      89,521 

Source: OptionMetrics

Shares of all five companies have fallen since the start of February, according to FactSet data.

U.S. stocks slumped again on Tuesday, briefly sending the Cboe Volatility Index VIX, better known as the VIX, back above 29. The VIX is set by activity in S&P 500 options set to expire in roughly one month.

But the gauge finished just shy of 27 as stocks rallied in afternoon trading on reports about a potential Russia-Ukraine ceasefire deal. The VIX tends to move inversely to the large-cap index.

The market also likely received a boost from an announcement by Ontario Premier Doug Ford and U.S. Commerce Secretary Howard Lutnick that the two officials have agreed to meet in Washington later this week. In the meantime, Ford said he would suspend a retaliatory surcharge on electricity exported from Canada to several U.S. states. Trump also told reporters in the afternoon that he would "probably" lower tariffs on Canadian steel and aluminum after ordering them doubled earlier in the day.

Read more: Here are the U.S. states that get electricity from Ontario, as Trump's trade war gets new twist

Still, the S&P 500 finished 42.49 points, or 0.8%, lower at 5,572.07 after falling more than 1% earlier in the session and briefly flirting with correction territory. The Nasdaq Composite COMP fell by 32.23 points, or 0.2%, at 17,436.10. The Dow Jones Industrial Average DJIA finished 478.23 points, or 1.1%, lower at 41,433.48. A stock-market correction is typically defined as a drop of 10% or more from a recent high. The S&P 500 hit its most recent record high on Feb. 19.

-Joseph Adinolfi

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March 11, 2025 16:36 ET (20:36 GMT)

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