Retail Traders Love 0DTE Options... But Should They?
Read the paperopens papers.ssrn.com in a new tab
What they found
Using Cboe data that identifies retail-sized S&P 500 index option orders from 2021 to 2023, the authors documented that the majority of retail SPX option trades are in contracts expiring the same day, and that retail traders lose money on them consistently, on the order of several hundred thousand dollars per day in aggregate. Retail 0DTE positions were mostly directional bets that paid wide effective spreads, and market makers earned substantial profits from providing liquidity to this flow. Losses were larger on days with high volatility.
What you can use
- Retail traders as a group lose money in 0DTE index options on most days, and the losses scale with how much they trade.
- The main cost is the spread and the negative expectancy of buying short-dated options, not bad direction calls.
- Market makers are the structural winners from 0DTE retail flow; if you are on the other side, you need a specific edge.
Caveats
Working paper, not yet peer-reviewed at the time of listing; retail identification relies on order-size heuristics. Two-year sample in a specific volatility regime.
Tags: options, 0dte, retail, spx
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.