Finance
Zero-day options are fueling the unprecedented volatility on Wall Street amid tariff chaos
A trader works on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., April 11, 2025.
Brendan Mcdermid | Reuters
Wild intraday gyrations in stocks since “liberation day” have put investors more on edge than ever, and the popularity of zero-day-to-expiration options is partly to blame.
Zero-day-to-expiration options are contracts that expire the same day that they’re traded. The trading volume of 0DTE options tied to the S&P 500 surged to 8.5 million in April, a 23% jump since the beginning of the year and accounting for roughly 7% of the total volume in U.S. option markets, according to data from JPMorgan.
These securities have become a popular tool for investors, big and small, to make a quick buck or hedge against sudden event-driven moves in the broader market. Many argued that large volumes of these short-lived vehicles can exacerbate price swings in the market as dealers and market makers buy and sell underlying assets to balance their positions.
“You’re seeing the zero data options market amplify and exaggerate almost up or down. If you go back 10, 20 years, you didn’t have these catalysts,” said Jeff Kilburg, KKM Financial CEO and CIO. “It’s almost like gasoline on a fire when you see a move being exaggerated by the underlying options move.”
S&P 500
Volatility surged as Trump introduced steep tariffs on U.S. key trading partners and repeatedly reversed and changed his own policy. On Wednesday, the S&P 500 posted its third-biggest gain in post-World War II history, following a four-day rout that briefly pushed it into bear market territory. Last week also saw the Dow Jones Industrial Average fall at least 1,500 points on back-to-back days, the first time in history.
S&P 500’s intraday volatility almost doubled last week to 44%, exceeding the 2020 highs and is now reaching levels last seen during the depth of the 2008 financial crisis, according to data from Cboe Global Markets. This extreme uncertainty fueled the demand for 0DTEs as investors look to hedge risk and take advantage of the volatility.
“We find that 0DTE (+1DTE) have been instrumental in driving more intraday volatility, with this higher intraday activity not necessarily getting captured on a close-to-close basis,” Maxwell Grinacoff, UBS’ head of U.S. equity derivatives research, said in a note.
These options are also made more accessible for retail investors using online broker Robinhood. An option is a contract that gives its owner the right, but not the obligation, to buy or sell a specific amount of an underlying asset at an agreed-upon price, known as the strike price, and on a specific date.
“Options have been an institutional tool for decades now, and the sophistication of retail investors is allowing more and more people to utilize options to hedge or to simply speculate,” Kilburg said.
The Federal Reserve held interest rates steady at its Wednesday meeting and did not disclose a timeline for when it will lower them. (iStock)
The Federal Reserve is keeping rates steady at its targeted range of 4% to 4.25% and is waiting to see how President Donald Trump’s administration’s tariffs will impact the economy.
For now, Federal Reserve Chair Jerome Powell said that the central bank is in the right place to monitor the impact tariffs will have on the economy before making a decision on further interest rate cuts. For now, the mandate remains the same: get inflation to a 2% target rate. The decision comes even with a negative first-quarter GDP reading. US GDP decreased at an annual rate of 0.3%. This was the first quarter of negative GDP growth since the first quarter of 2022.
“While gross domestic product recorded a mild decline in the first quarter, prompting concerns about a recession, broader economic data underscore ongoing resilience,” the National Apartment Association’s new Vice President of Research, George Ratiu, said in a statement. “The main risk to economic activity is continuing financial pressure on households coming from higher monthly bills, combined with the looming threat of rising layoffs.”
The Fed had anticipated two interest rate cuts for this year, but the impact of how President Trump’s tariffs will play out has derailed this plan. Powell said that the Fed is in a good place to think out policy rates to respond promptly and to potential developments, including rate cuts or holding them steady.
“Despite heightened uncertainty, the economy is still in a solid position,” Powell said at a press conference on Wednesday. “The unemployment rate remains low, and the labor market is at or near maximum employment. Inflation has come down a great deal but has been running somewhat above our 2% longer-run objective.”
If you are struggling with high inflation, consider taking out a personal loan to pay down debt at a lower interest rate, reducing your monthly payments. Visit Credible to find your personalized interest rate without affecting your credit score.
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Mortgage rates won’t budge in time for summer home buying
With no rate cut in sight, housing affordability will remain a central challenge for most Americans, whether they are looking to buy or rent, according to Raitu.
Mortgage rates are likely to remain in the high 6% range they’ve held for the last six months without action from the Fed. Home prices are roughly 50% higher than they were in 2019. That means that with current mortgage rates, buyers are facing a $2,200 monthly payment on a median-priced home.
”The best-case scenario for mortgage rates is to hover just above the 6% mark for the next two years,” said Victor Kuznetsov, Imperial Fund Asset Management co-founder and managing director. “The average American household has adopted a wait-and-see strategy regarding mortgage rates, as they also seek to reduce their monthly consumer spending amid current economic uncertainty.
“The good news is that employment and home prices remain strong, so families will be in a better position to buy or refinance a home in the coming months, especially if rates dip below 6%,” Kuznetsov continued.
Mortgage rates are expected to remain flat through the summer housing market. The Mortgage Bankers Association forecasts that the Fed will resume cutting short-term rates in the year’s second half. “Heading into the Fall, if inflation cools as expected, mortgage rates will begin to dip slowly and steadily, finishing out 2025 around 6%,” Voxtur CEO Ryan Marshall said.
If you want to become a homeowner, you can find the best mortgage rates by shopping around. Visit Credible to compare your options without affecting your credit score.
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Lending picks up despite higher rates
Some buyers aren’t waiting for interest rates to drop, and lending has picked up recently as consumers readjust their outlook and expectations, according to Michele Raneri, TransUnion vice president and head of U.S. research and consulting.
“While the possibility still exists for potential rate cuts later this year, the economic picture is complicated, and it’s too early to know if or when those cuts might happen,” Raneri said. “We’re starting to see some positive signs in lending – mortgages, home equity loans and auto financing are showing signs of life after a slow couple of years.
“However, these gains will likely remain incremental until rates begin ticking down, as many borrowers are reluctant to take on a loan at today’s rates, particularly if they currently have a loan at a significantly lower rate,” Raneri continued.
If you’re worried about the state of the economy, you could consider paying down high-interest debt with a personal loan at a lower interest rate. Visit Credible to speak with a personal loan expert and get your questions answered.
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