Summary Retail Traders Love 0DTE Options... But Should They? by Heiner Beckmeyer, Nicole Branger, Leander Gayda :: SSRN papers.ssrn.com
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The study reveals that a majority of individual investors in S&P 500 options actively participate in trading 0DTE options.
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Key Points
- Retail traders are increasingly trading in options that expire on the same day (0DTE options).
- The growth of trading in S&P 500 index options can largely be attributed to the demand for 0DTE options.
- While retail investors benefit from price improvements, they experience losses on average.
- Between February 2021 and February 2023, retail investors lost $184,000 on average per day.
- Since the introduction of a daily expiration calendar in May 2022, average losses have grown to $358,000 per day.
- Retail investors take the expensiveness of 0DTE options into account but significant spreads charged by market makers lead to losses.
- This study serves as a cautionary tale against unrestricted access to complex trading vehicles for investors lacking financial education.
Summaries
23 word summary
This study analyzes the impact of trading in 0DTE options, finding that most retail traders in S&P 500 options engage in these contracts.
50 word summary
This study examines the implications of trading in options that expire on the same day, known as "0DTE" options. The authors find that the majority of retail investors' trades in S&P 500 options are in 0DTE contracts.
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Retail Traders Love 0DTE Options... But Should They? by Heiner Beckmeyer, Nicole Branger, Leander Gayda :: SSRN
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Retail Traders Love 0DTE Options... But Should They?
34 Pages
Posted: 13 Apr 2023
See all articles by Heiner Beckmeyer
Heiner Beckmeyer
University of Mnster
Nicole Branger
University of Mnster - Finance Center Muenster
Leander Gayda
University of Mnster - Finance Center Muenster
Date Written: March 30, 2023
Abstract
Our study is the first to investigate the implications of trading in options that expire on the same day - so-called "0DTE" options. Almost the entire growth of trading in S&P 500 index options can be traced back to demand for 0DTE options. We use recent exchange-related developments to identify option trades that originate from retail investors, and find that more than 75% of their trades in S&P 500 options today are in 0DTE contracts. While retail investors benefit from significant price improvements, such as lower effective spread, they experience losses on average: Between February 2021 and February 2023, retail investors lost $184,000 on the average day; since the introduction of a daily expiration calendar in May of 2022, this number has grown to average losses of $358,000 per day. We find that retail investors correctly take the expensiveness of 0DTE options into account when placing their orders, but that the substantial spreads charged by market makers lead to significant losses. Our study is a cautionary tale against unrestricted access to highly complex trading vehicles by investors who lack sufficient financial education.
Keywords:
Retail Trading, Options, WallStreetBets, Payment for Order Flow, 0DTE
JEL Classification:
G4, G5, G12, D4
Suggested Citation:
Suggested Citation
Beckmeyer, Heiner and Branger, Nicole and Gayda, Leander, Retail Traders Love 0DTE Options... But Should They? (March 30, 2023). Available at SSRN:
https://ssrn.com/abstract=4404704
or
http://dx.doi.org/10.2139/ssrn.4404704
Heiner Beckmeyer (Contact Author)
University of Mnster (
email
Schlossplatz 2
Muenster, D-48143
Germany
HOME PAGE:
http://heinerbeckmeyer.com
Nicole Branger
University of Mnster - Finance Center Muenster (
email
Universitatsstr. 14-16
Muenster, 48143
Germany
+49 251 83 29779 (Phone)
+49 251 83 22867 (Fax)
HOME PAGE:
http://www.wiwi.uni-muenster.de/fcm/fcm/das-finance-center/details.php?weobjectID=162
Leander Gayda
University of Mnster - Finance Center Muenster (
email
Schlossplatz 2
Muenster
Germany
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Plum Print visual indicator of research metrics
Usage
Abstract Views:
7064
Downloads:
2846
Captures
Readers:
15
Mentions
News Mentions:
Social Media
Tweets:
54
see details
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