Deutsche Boerse’s Eurex, an international futures and options exchange, is introducing a new offering for investors – zero-day options for the Euro Stoxx 50 index, XX:SX5P. This move comes in response to the growing institutional demand for short-term expiries, as investors increasingly seek to react quickly and precisely to specific market events.
Zero-day options, also known as 0DTEs, have gained significant popularity in the United States. Last year, two major U.S. derivatives exchanges launched these options, and trading volume on options linked to the S&P 500 or S&P 500-tracking exchange-traded funds reached record highs in August. However, this feverish activity was also attributed to a sudden stock selloff in the U.S. earlier this month.
According to the CBOE, in July, total volumes for S&P 500 Index options surpassed 2.6 million contracts, with approximately 46% of that volume (1.2 million contracts) being zero-day options. In August, the total volume for SPX options was 2.9 million contracts, and zero-day options accounted for around 50% of that.
While it is still too early to determine the appetite for zero-day options in Europe, it is expected that they will gain popularity among individual investors. Peter Garnry, Saxo Bank’s head of equity, believes that zero-day options have become the most traded equity option instruments in the U.S., particularly among individual investors. Therefore, it would be reasonable to assume that they will also find popularity in Europe.
Zero-Day Options: A Closer Look at the European Market
The Euro Stoxx 50 futures and options have long dominated the trading scene in Europe. In fact, Eurex reported an impressive 19 million index options and over 15 million futures contracts traded in the month of July alone, as stated by Deutsche Boerse.
While the concept of zero-day options may seem new to some, professional options trader Koen Hoefgeest, based in the Netherlands, debunks this notion. According to him, the daily Amsterdam Exchange Index (AEX) options, also known as 0DTE options, were introduced on the Euronext Liffe Options Exchange back on March 31, 2008. These options gained popularity following the success of AEX Index weekly options, Hoefgeest shared in emailed comments.
Over time, these AEX options were moved to ICE Futures Europe due to a series of takeovers. Their unique feature is that they expire at the end of each day, unless there are other weekly or monthly index option expirations occurring on the same day.
Based on data from Euronext, Hoefgeest reveals that overnight options trading accounted for 23.4% of total AEX options trading in the early months of this year. In comparison, it represented 21.2% of trading volume throughout 2022. From this data, Hoefgeest concludes that there isn’t a significant frenzy surrounding daily options in Amsterdam.
Hoefgeest further adds his perspective on the potential interest from private investors in these new daily Euro Stoxx 50 options. He believes that while it remains uncertain how professional parties will utilize these options for leveraged products or hedging activities, he doesn’t foresee them taking off as quickly as their counterparts in the United States.
Offering a contrasting viewpoint, Garnry from Saxo Bank highlights that based on client behavior, there is a considerable preference for 0DTE options. This, in conjunction with the positive feedback received, indicates a strong interest in these options from Deutsche Börse.
Also read: Here are 5 ways that trading in 0DTE stock options is changing how the market works