The Most Popular Options Trade Turns a $1 Investment Into a $1,000 Stock Bet

There’s an invisible force driving the most popular options trade of the year — one that gives Wall Street pros and day traders alike the power to turn a $1 investment into a $1,000 stock bet.

Investors are wagering on the daily gyrations of American equity benchmarks by dashing in and out of trading contracts that expire within 24 hours — known by the “0DTE” moniker — with less upfront capital than meets the eye. The hidden fuel for the frenzy: Quirks in the ecosystem of the derivatives marketplace that makes these zero-days-to-expiry options look cheap.

The best way to observe the phenomenon is in the difference between how much investors are actually spending on 0DTE and the notional value of those options — that is, how much exposure they are getting to the underlying asset via the contracts.

On the latter, the notional trading volume of 0DTE for the S&P 500 currently averages a beefy $516 billion a day, according to data compiled by Cboe Global Markets. Yet the actual amount of money paid out for them, or the premium, is only $520 million.

Put another way, traders are getting $1,000 of stock exposure for every dollar they spend on 0DTE. They would need to spend 10 times that to get the same equity position using derivatives with a longer lifespan, a Bloomberg analysis on Cboe’s data shows.

“They are the fantasy football of option trading,” said Dennis Davitt, co-manager of the MDP Low Volatility Fund. “You spend a dollar and you see if it goes your way. Then you’re done at the end of the day.”

No wonder these zero-day options are fast becoming a popular tool for retail investors to speculate en masse — sparking concerns among the likes of JPMorgan Chase & Co. that the strategy risks fueling volatility in the broader marketplace.

It Looks Cheaper to Make Equity Bets via Zero Day Options