ANALYSIS: Cboe points to retail flow as zero-day options grow

Cboe on Friday reported record derivatives revenue of $309 million (£233m) in the first quarter, 16% higher than the same period in 2024. The increase was in part driven by a spike in index options trading, including a 13% year-over-year rise in S&P 500 index (SPX) options trading. David Howson, president of Cboe said on a call with analysts that the rise in zero-day-to-expiry (0DTE) had helped support liquidity this year.

“The growth in our SPX options franchise was led by a continued rise in 0DTE options trading,” Howson (pictured) said. “This was on the back of two factors, the first was the fast moving nature of headlines coming from the US administration, as investors turned to zero-day options to help monetise the increase in intra-day volatility.

“Second was expanded access, with Robinhood rolling out index options to all customers in late January. 0DTE option volumes averaged almost 2 million contracts in Q1, up 29% year-over-year and making up a record 55% share of overall SPX volumes.”

Cboe went live in October on Robinhood, allowing the retail platform's customers to trade the US exchange's index options, including its flagship SPX, Volatility Index (VIX), Russell 2000 Index (RUT) and Mini SPX (XSP) options. It rolled out full access to clients at the start of this year.

“Robinhood came on board quicker than we expected and the ramp up was greater than we expected,” Howson said in response to an analyst question. “We saw good utilisation across the toolkit there, with the majority of the activity in SPX. I’ll take the opportunity here to talk a little bit about the characteristics that we see from retail in Q1 and that prevail into Q2…

“The first comment I would make is that retail behaviour seems remarkably disciplined. What I mean by that is that when you look at the strategies they deploy when they are opening trades – 95% of those in SPX 0DTE are what we call ‘capped risk’. That is where the maximum loss is known at the point of entry. What we have seen throughout Q1 and indeed at the start of April – where we have seen these extreme volatility spikes, we see retail investors remain engaged but take a really disciplined approach to the market.”

SPX 0DTE options has grown five-fold over the past three years, and retail flow now makes up around 50% to 60% of 0DTE trading (see chart 1) according to estimates published last week by Cboe Market Intelligence.

Chart 1

Source: Cboe Market Intelligence

“Liquidity providers find this deep, rich pool of liquidity a great place to hedge the positions that they get into from the initiating side of the trade,” Howson added. “So we see the ecosystem being really robust and diverse with a range of customers exercising different strategies there to really help the ecosystem, and keep it balanced.

“That is a great thing to see with buys and sells being balanced, and put/call ratios remaining to be around 1 there, so a healthy outlook for 0DTE. As we look forward, we will bring more users internationally and locally as well as more use cases to bear as customers begin to launch product on 0DTE.”

More recently, the bout of tariff volatility in early April was attended by a decline in retail participation. The share of SPX trading fell to 47% from 57% in early April (see chart 2) according to research published on Friday by Mandy Xu, head of derivatives market intelligence at Cboe.

“Just like in previous episodes, retail investors have returned once volatility has abated, with the retail share jumping back up to 60% in recent weeks,” the report said. “We attribute much of the resilience in 0DTE trading to the fact that over 95% of all 0DTE trades are done in a limited risk format (either long options outright or short via spreads) where the max loss is known at the point of entry. Only 4% of SPX 0DTE trading is in naked short options.”

Chart 2

Source: Cboe Market Intelligence

Robinhood also made in January CME Group’s futures and options across asset classes available to its US customers. Speaking to FOW in March, vice president and general manager of futures and international at Robinhood JB Mackenzie laid out the firm’s strategy for enhancing access to derivatives.