Conference Agenda

This paper examines the impact of Zero-Day-to-Expiration (0DTE) options trading on stock market volatility. The monthly trading volume of 0DTE options linked to indices increased from .08 million contracts in January 2011 to 34.4 million contracts in August 2023 and now accounts for 48% of the trading in index options. Using the staggered introduction of index weekly options as an instrument variable, we show that a one standard deviation increase in 0DTE options trading leads to 9.10% increase relative to the mean value of volatility, which is 15.91% of its standard deviation. Even after controlling for option market makers’ gamma hedging, we find that the impact on volatility remains positive and is primarily driven by speculative retail investors.

Although still relatively new, nocturnal trading in U.S. equities, defined as trading between 8:00 p.m. and 4:00 a.m., has grown rapidly. It is largely retail-driven, concentrated in a small set of securities, and marked by substantial order imbalances. Using unique transaction-level data, we show that nocturnal execution costs exceed regular-hours benchmarks but are broadly consistent with elevated adverse selection faced by liquidity suppliers. Nocturnal returns generally do not reverse during the subsequent regular-hours session, except in a small subset of high-sentiment stocks. Overall, the nocturnal session appears to be an important source of price discovery and may create profit opportunities for retail liquidity demanders despite higher transaction costs.