UBS Says Contrarian 0DTE Options Trading Is Suppressing S&P 500 Volatility

The S&P 500 has barely moved since early June despite major shocks — the Iran war, rising Treasury yields, the Fed's first rate hike in three years and doubts over AI investment returns — and UBS attributes the unusual calm in part to the booming options market, particularly zero-day-to-expiry (0DTE) contracts. The index closed at 7,599.96 on June 1 and 7,676.77 on Monday, a gain of about 1%, with its rolling 50-day trading range narrowing sharply. Analyzing Cboe order-flow data, UBS analysts found 0DTE traders increasingly fade the market: buying puts or selling calls when the index rises, and the reverse when it falls — a shift from 2024, when flows showed little link to spot moves. Adjusted for market exposure, daily S&P 500 options volume is now about 1.7 times that of E-mini S&P 500 futures. OptionMetrics data show 0DTE contracts hit a record 75% of daily S&P 500 options volume earlier this year and have held at 60% to 70% since early summer. Its quant research head, Garrett DeSimone, said related hedging may be dampening intraday swings, while growing divergence between AI and other stocks lowers index-level volatility.