Despite concerns over its contribution to market volatility and being viewed as speculative excess, the surge in equity options with zero days to expiration (0DTE) has caught the attention of Wall Street brokers, leading to the rollout of innovative strategies to capitalize on this trend.

Options AI has seen its trading volumes double following the December introduction of S&P 500-linked options. Moomoo Technologies Inc. is enticing traders by eliminating exchange fees for these new index contracts, and Webull Financial LLC is breaking new ground by allowing clients to sell derivatives without holding the underlying assets.

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Robinhood Markets Inc., already offering 0DTEs on select exchange-traded products, is set to broaden its offerings to include broad index options later in the year.

As the stock market oscillates with fresh economic updates and monetary policy shifts, the financial industry is devising methods to cater to both institutional and retail appetites for these novel options, even as the Federal Reserve keeps a watchful eye.

The question remains whether the industry’s risk management frameworks can keep pace with the escalating enthusiasm for 0DTEs.

Options AI and Moomoo are among the firms actively pursuing a share of the burgeoning market, with the latter having eliminated commission fees on single-stock options to zero in a bid to attract more users, particularly from its substantial Asian customer base.

The popularity of S&P 500 0DTE contracts has skyrocketed, outpacing the broader options market growth, with retail traders accounting for a significant portion of the activity.

For traders like Daniel Crocker, who transitioned to full-time trading with Moomoo, the allure of 0DTE options lies in their low entry cost and high potential returns, despite the inherent unpredictability.

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The expansion of S&P 500 option expirations to every weekday has turned 0DTEs into a significant revenue source for exchanges like Cboe and a potential income stream for brokers, given the prevalent contract fees.

However, this trading boom has sparked concerns regarding the adequacy of the industry’s risk management capabilities, especially in monitoring highly leveraged 0DTE traders who might incur rapid losses in volatile markets.

A Federal Reserve survey highlighted gaps in dealers’ abilities to identify client strategies and assess risk appetite changes during volatile sessions, revealing that many do not require collateral for 0DTE trades unless under specific conditions.

Despite these challenges, firms like Moomoo and Webull assert they have robust systems and have tightened risk controls to oversee trading activity and ensure the safety of offering advanced trading strategies to their clients.