Stock market today: Dow records Friday gains; S&P 500 and Nasdaq celebrate big weekly comeback
Trading in trending zero-day options contracts saw a sharp decline relative to overall activity on Monday, suggesting a revival in demand for longer-term hedges.
Trading volume in S&P 500-linked contracts with a maturity of 24 hours or less, known as zero-days-to-expiration, or 0DTE, options, fell to 26 percent of total options volume on Monday as U.S. stocks endured their worst session in two years, according to data from OptionMetrics. For most of last year, their share was around 50 percent.
Also on Monday, the Cboe Volatility Index (VIX), an indicator that reflects demand for longer-term S&P 500 options, posted its biggest intraday increase ever, according to Dow Jones Market Data.
The data suggests traders have abandoned shorter-term options in favor of contracts with longer-term protection. The shift likely reflects the fact that risks to the market posed by signs of an economic slowdown are making longer-term hedges necessary, say Mike and Matt Thompson, co-portfolio managers at Little Harbor Advisors.
Zero-day options, on the other hand, are more effective as a tactical hedge against risks associated with specific events, such as the release of economic data, interest rate decisions by the US Federal Reserve, or earnings reports from companies.
The VIX closed above 38 on Monday, its highest closing level since April 2020. However, it briefly exceeded the 65 mark earlier in the session.
