Nasdaq Plan Will Bring Zero-Day Option Boom Closer to Single Stocks

Yahoo

01-05-2025

(Bloomberg) -- Nasdaq Inc. wants to increase the number of days that options on megacaps like Nvidia Corp. and Tesla Inc. can expire, in what could be a key step toward expanding Wall Street's zero-day trading boom to single stocks.
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The explosive growth in the buying and selling of derivatives with less than one day to expiration — known as 0DTE options — has so far been largely contained to contracts tied to major indexes such as the S&P 500 and a handful of corresponding ETFs. That's because they boast daily expirations, whereas options on single equity names only expire on a Friday.
Nasdaq has filed a proposal to expand those weekly expirations for a small group of qualified stocks to add both Monday and Wednesday.
Pending an approval from the US Securities and Exchange Commission, options with those maturities are expected to start trading as early as the first half of 2026, according to the exchange operator. The move is aimed to help investors 'more precisely manage their portfolios and their risk in a transparent, liquid, and secure marketplace,' a spokesperson said.
The step up to three days would echo the process followed with S&P 500 options. They also expired on a Monday, Wednesday and Friday until 2022, when exchanges including Cboe Global Markets Inc. expanded expirations to every weekday. That set off an avalanche of trading activity as investors flocked to the fast-twitch derivatives for both hedging and speculation.
0DTE contracts now account for more than half of the total traded volume of options tied to the S&P 500.
The route to success with individual names is likely to be more complicated. Single-stock options are typically physical settled, rather than cash settled as in the case of index options. That creates extra risk especially for retail traders, who may not be aware of the difference. In the event a stock gets assigned upon expiration and then plunges overnight on news such as disappointing earnings, the contract owner can be exposed to substantial losses.
In a bid to alleviate that kind of risk, Nasdaq is proposing not to list any Monday or Wednesday expirations that would coincide with a company's earnings release.
Meanwhile, to ensure sufficient liquidity and demand, the exchange group is proposing only to provide the additional expirations for options on stocks with a minimum market cap of $700 billion, or exchange-traded funds with a net asset value of more than $50 billion. The underlying securities will also need to meet certain criteria surrounding options volume and open interest.
Based on data from last quarter, Apple Inc., Amazon.com Inc., Alphabet Inc., Microsoft Corp., Broadcom Inc., Meta Platforms Inc. and the Financial Select Sector SPDR Fund would make the cut alongside Nvidia and Tesla.
Nasdaq is opting for a 'very safe, slow roll out to see how things go,' said Jake Taylor, head of US single stock options at Optiver Holding BV, one of the world's largest options market makers. The move is a 'natural progression' from the success of 0DTE and other exchanges could follow suit, he said.
While appetite for 0DTE options on single stocks is untested, the signs are that demand would be high. In January, almost 31 million contracts on single stocks changed hands daily, surpassing those on indexes and ETFs combined, according to data compiled by Cboe.
Yet volume is concentrated, with contracts linked to 10 companies accounting for 40% of all single-stock option trading.
Investor enthusiasm for single-stock 0DTE may soon get a partial test from the ETF market, where one issuer filed earlier this year to create a line of funds trading ultra-short maturity options on Nvidia and other retail-investor favorites. Those products plan to use what are known as Flex options as a workaround given the lack of daily expiring single-stock contracts.
The addition of more weekly expiries would be 'a valuable step forward in meeting the diverse and dynamic needs of today's retail investors,' said Nate Palmer, president of retail broker Moomoo Financial Inc.
--With assistance from Katherine Doherty.
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