Retail Traders Love 0DTE Options... But Should They?

50 Pages Posted: 13 Apr 2023 Last revised: 26 Dec 2023

See all articles by Heiner Beckmeyer

Heiner Beckmeyer

University of Münster

Nicole Branger

University of Münster - Finance Center Muenster

Leander Gayda

University of Münster - Finance Center Muenster

Date Written: March 30, 2023

Abstract

Our study investigates trading in options that expire on the same day-so-called "0DTE" options-through the lens of retail investors. Using the recently activated Automated Price Improvement Mechanism to identify option trades that originate from retail investors, we find a strong preference for 0DTE options. Today, more than 75% of their trades in S&P 500 options involve 0DTE contracts. Despite benefiting from lower e↵ective spreads due to the price improvement mechanism, retail investors experience substantial losses. We explore the factors influencing how retailers are positioned in this market, and identify several drivers for their poor performance, both in the aggregate and at the level of individual trades.

Keywords: retail trading, options, preferences, payment for order flow, 0DTE

JEL Classification: G4, G5, G12, D4

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 Münster ( email )

Schlossplatz 2
Muenster, D-48143
Germany

HOME PAGE: http://heinerbeckmeyer.com

Nicole Branger

University of Münster - 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 Münster - Finance Center Muenster ( email )

Schlossplatz 2
Muenster
Germany

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