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.

While several venues have offered trading prior to the U.S. equity market open and after the close for decades, only recently have alternative trading systems started offering trading between 8 p.m. in the evening and 4 a.m. the next day – nocturnal trading. This innovation enables U.S. retail investors to trade U.S. stocks and exchange traded products 24 hours, five days a week. Importantly, it also enables Asian investors to trade U.S. stocks during Asian business hours. We document the explosive growth of nocturnal trading in the last three years – a development that has recently motivated several additional venues to seek SEC approval to also offer nocturnal trading. We find that while effective spreads during the nocturnal hours are worse than during regular trading hours, realized spreads are about the same or better. We also find that significant price discovery takes place between 8 p.m. and 4 a.m., particularly for exchange-traded products. Finally, we rely on a quasi-natural experiment to study how nocturnal trading affects pre-open, regular, and after-hours trading.