The Ultimate Option Strategy: Zero-Day-to-Expiration (0DTE) Options
Zero-Day Options Expand to Treasuries and Commodities
Defiance ETFs Apply the 0DTE Strategy
Growth in options-based ETFs, a class of derivative products, has been accelerating rapidly. Underlying assets have diversified from major indices such as the Dow Jones to single-stock covered call strategies. From a strategic perspective, the market has evolved beyond simple covered call ETFs—which combine spot asset purchases with call option selling—to more sophisticated buffer ETFs, which combine long and short positions in both put and call options to limit downside risk. More recently, an even more aggressive strategy has emerged: Zero Day to Expiration (0DTE) trading, in which options are bought and sold entirely on the day they expire.
In the U.S., standard option expiration traditionally occurs on the third Friday of each month. However, in mid-2022, the Chicago Board Options Exchange (CBOE) expanded weekly options—previously expiring on Mondays, Wednesdays, and Fridays—to include Tuesdays and Thursdays as well. This effectively enabled daily option expiration. Since the pandemic-era liquidity expansion, trading volume in 0DTE options has surged. This year, 0DTE options linked to the S&P 500 accounted for 43% of total options trading volume, with average daily volume reaching 1.23 million contracts, representing a notional value of roughly $500 billion.
An option’s value consists of intrinsic value, derived from the difference between the strike price and the underlying asset price, and time value, which reflects expectations of price movement until expiration. The key issue is that time value decays rapidly as expiration approaches. As a result, option prices on expiration day can change dramatically. This speculative nature of 0DTE trading has raised concerns among market participants.
In February 2018, the S&P 500—then in a prolonged uptrend—fell nearly 10% in just nine days, an event later dubbed “Volmageddon”, a blend of volatility and Armageddon. The sharp decline was attributed in part to hedge funds employing volatility-based strategies. Some experts now warn that the explosive growth of 0DTE trading could destabilize spot markets—a phenomenon often described as “wag the dog,” where derivatives markets exert outsized influence on the underlying asset.
Against this backdrop, Nasdaq recently listed five new 0DTE options. The underlying assets include crude oil (USO), natural gas (UNG), gold (GLD), silver (SLV), and the 20+ year U.S. Treasury ETF (TLT). Nasdaq has stated that it does not expect these products to disrupt financial markets and instead views them as alternative tools for retail investors seeking to manage event-driven risks, such as those surrounding FOMC meetings. Supporting this view, CBOE Insight data shows that even after the rise of 0DTE trading, intraday volatility in the S&P 500 has not materially increased.
ETFs utilizing 0DTE strategies have also entered the market. In September, Defiance ETFs launched products that sell put options expiring daily on the Nasdaq 100 and the S&P 500. The structure is considered efficient. The payoff profile of selling put options closely resembles that of a covered call strategy—long the underlying asset and short a call option. Remaining cash is invested in short-term U.S. Treasuries with maturities of six months to two years, serving as option collateral while targeting yields of 4–5%.
When selling put options, Defiance ETFs select strikes ranging from at-the-money (ATM) to in-the-money (ITM) options with strikes up to 5% above the underlying price. As a result, income is generated not only from the rapidly decaying time value of same-day-expiring options, but also from the intrinsic value embedded in ITM options. This reflects a broader trend in which income sources are diversifying beyond traditional equity dividends and bond coupons.
The tickers of Defiance ETFs directly reference their underlying assets. When comparing one-month performance against similar covered call ETFs, the 0DTE-based ETFs have delivered higher returns. However, it is difficult to isolate whether this outperformance stems from underlying asset price movements or from the superior premium capture associated with 0DTE volatility.
In theory, shorter-dated options should command higher premiums. Still, it is premature to conclude that 0DTE strategies are categorically superior. These products have a limited performance history, and direct comparisons are challenging—particularly when contrasting traditional covered call ETFs that sell ATM call options with Defiance ETFs that employ put-selling strategies extending to 5% ITM. Nevertheless, the rapid expansion of the 0DTE market and the launch of products built around it warrant close attention.
We now live in an era where discussions extend beyond AGI (Artificial General Intelligence) to ASI (Artificial Superintelligence)—systems that may surpass human intelligence. In finance, too, innovation is accelerating. Options-based products have evolved from single-stock strategies to buffer ETFs and now to 0DTE-based ETFs. These approaches may be unproven, but in an era of rapid change, the ability to understand, evaluate, and apply new market structures can open the door to entirely new investment opportunities.