0DTE Options Traders Now Set the S&P 500's Price, UBS Says

Zero-day options now outgun E-mini S&P 500 futures by roughly 1.7 to one in daily gross volume, once you adjust each contract for its sensitivity to index moves. That's the finding from a team of trading-desk analysts at UBS, and it explains a lot about why the S&P 500 has barely budged since June.

The numbers tell the story of a stuck market. The index closed at 7,599.96 on June 1 and at 7,676.77 on Monday — a gain of only about 1% over the period. On a rolling 50-day basis, the trading range looks conspicuously narrow, according to MarketWatch.

That stagnation is striking given what investors have absorbed in recent months. The Iran war has dragged on. Treasury yields touched their highest levels in decades. The Federal Reserve has returned to raising interest rates. Worries about returns on enormous levels of artificial-intelligence investment have weighed on semiconductor stocks and other AI-related plays.

What changed on Wall Street's trading floor?

For decades, price discovery followed a clear pecking order, as the UBS team describes it. Cash equities and index futures did most of the heavy lifting, while options were more of a sideshow. The massive growth in options over the past few years has flipped that dynamic.

Since 2022, day traders have piled into S&P 500 contracts that expire at the end of the session — the so-called zero-days-until-expiry, or 0DTE, options. The label covers any option due to expire at the close of that same trading session.

These contracts are hugely risky. Small moves at the index level can cause huge swings in the option's price when it sits close to being "in the money." Some have likened them to lottery tickets.

After studying options order-flow data from the Cboe — which holds an exclusive license to list S&P 500 index options — the UBS analysts found that 0DTE traders have increasingly traded against the market's direction.

The pattern works like this:

• When the S&P 500 is higher on the day, these traders pile into 0DTE puts or sell 0DTE calls.
• When the index is lower, they do the opposite — buying 0DTE calls and selling 0DTE puts.

That's a big shift from 2024, when 0DTE order flow showed little relationship to recent moves in the spot market.

Why does this suppress volatility?

The UBS team argues the growing popularity of this countertrend strategy has likely helped stifle the index's directional momentum. Traders selling into strength and buying into weakness mechanically dampens intraday swings, and the hedging flows around those positions amplify the effect.

"It's totally plausible that the hedging behavior associated with this activity is one of the factors that is suppressing intraday moves," Garrett DeSimone, head of quantitative research at OptionMetrics, told MarketWatch.

Data from OptionMetrics shows how dominant the segment has become. Trading in S&P 500 0DTE options as a share of total daily volume in the index complex peaked at a record 75% earlier this year. Since the start of the summer, that figure has routinely ranged between 60% and 70%.

DeSimone pointed to a second, structural factor: a market split in two. "You almost have this bifurcated market, where you've got AI and then everything else. That lends itself to lower correlation and lower volatility at the index level," he said.

What does this change for practitioners?

If you trade index futures or run hedging programs, the price-discovery hierarchy you built your playbook on no longer applies. Options desks — and specifically same-day expiry flow — are now the marginal price setter, and that flow leans mechanically countertrend.

For portfolio managers, the practical takeaway is that headline risk may translate into smaller index moves than fundamentals alone would suggest, because two damping forces are working at once: countertrend 0DTE flow and falling cross-sector correlation in a bifurcated market. The corollary: if that flow reverses or the AI-versus-everything-else split narrows, the suppressed volatility has to go somewhere.