Options Volume Is a Major Driver Of Today's Market

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If you have been trading the S&P futures for more than 20 years, you know there used to be the “futures are overbought or oversold.” You also know that it could be exploited, but as time has gone by, it's not the futures that are moving the markets anymore — it's the options markets. 

The CME's S&P 500 options, the CBOE’s SPX, SPY, VIX options, the NASDAQ, NY Stock Exchange (AMEX), International Securities Exchange (ISE), UREX, Boston Options Exchange (BOX), Miami International Securities Exchange (MIAX), the Pacific Exchange — you get the idea. 

And this doesn't include all the big Wall Street firms, prop trading desks and dark pools. Options volume continues to hit new record after new record, and this has had big implications for the overall market. According to the Options Clearing Corp, around 44 million options contracts changed hands on an average day in 2023, which has doubled the volume from five years ago. 

Now, many option markets trade almost 24 hours a day. As I have said many times, these are not our father's markets or charts. 

While some investors think of options as a way to limit their risk, the big uptick in volume is anything but. It's about taking on larger risks for larger payouts. Instead of the standard “buy and hold,” the public and institutional trade is now taking on much larger size and using smaller time frames, like the zero-days-to-expiration or (0DTE) options, which now represent close to 50% of overall option-trading volumes. 

While we have not seen some of the crazy moves from the 0DTE recently, it was not long ago — and of all the firms to complain — Goldman Sachs complained about the late-day volatility tied to the 0DTE options. I guess this is nothing new, but after a quiet period in the S&P the next time the futures explode it may be a good idea to learn as much as you can and that is why MrTopStep is a partner with SpotGamma, which says trading in contracts that expire in five or fewer days touched a record 59% in October and has remained elevated. 

Many traders are increasingly holding positions for hours, or even minutes, in a bid to rapidly juice their returns. The one-day trades, known by the hashtag #0dte, have gone viral, with tens of thousands of mentions swirling online that have helped draw even more people in. So next time the ES explodes higher, remember where the buying is coming from.