0DTE Options and Dealer Hedging, Explained

By The Oracle · For education, not financial advice.

0DTE options are options with zero days to expiration: they expire at the end of the day they trade. With only hours left, an at-the-money 0DTE option has very high gamma, so its delta can swing from near 0 to near 1 on a small move, and the dealers on the other side must adjust their hedges fast. If dealers are short that gamma, their hedging adds to moves; if they are long it, their hedging leans against moves and can pin price near a strike. How much this moves the market depends on dealers’ net position, which research suggests is often smaller than the headline volume implies.

What 0DTE means

Any option is 0DTE on its last day. The term took off once index products began expiring every weekday. SPX options have daily expirations, as do SPY, QQQ and a few other index products and ETFs, so there is always a contract expiring today. Most single stocks list weekly expirations at most, so their options are 0DTE only on expiration day. The 0DTE options list names every underlying with daily expirations, with the exchange sources.

Same-day trading is now the bulk of index options activity. Cboe reported that 0DTE contracts made up 59% of SPX options volume in 2025, about 2.3 million contracts a day.

Two details matter. SPX options are European-style and cash-settled, so they cannot be exercised early and no shares change hands at expiration. SPY options are American-style and settle into shares, so an in-the-money SPY option left open at the close becomes a stock position.

Why gamma spikes near expiration

Gamma measures how fast an option’s delta changes as the price moves. For an at-the-money option, gamma rises as expiration nears, roughly with one over the square root of the time left. With a month to go, a small move barely changes delta. With an hour to go, the same move can turn a coin-flip option into one that is almost certain to finish in or out of the money.

Time decay works the same way. An at-the-money 0DTE option loses value quickly through the day, and an out-of-the-money one heads toward zero unless price comes to it.

How dealers hedge 0DTE

• Short gamma. If customers bought the options, dealers are short them. To stay hedged, dealers buy as price rises and sell as it falls, which adds to the move. Late in the day, with gamma at its highest, that chase can be sharp.
• Long gamma. If customers sold the options, dealers are long them. Their hedging sells rallies and buys dips, which tends to hold price near the heaviest strikes. This is the mechanism behind a pin, and the idea behind max pain.
• Time alone. As the day passes, an out-of-the-money option’s delta shrinks toward zero even if price does not move (an effect called charm), so hedges get unwound into the close.

The two regimes are covered in full in positive vs negative gamma.

A worked example

Suppose XYZ rises $1, about 0.17%.

• At 10:00, six hours before the close. The calls’ delta rises from 0.50 to about 0.57. Dealers now need 286,500 shares, so they buy about 36,500, roughly $22 million.
• At 3:30, thirty minutes before the close. The same $1 rise lifts delta from 0.50 to about 0.74. Dealers now need 368,500 shares, so they buy about 118,500, roughly $71 million.

The same move forces more than three times as much buying late in the day. Now flip the assumption. If customers had sold those calls, dealers would be long them and would sell into the same rise, leaning against it. One assumption about who holds the contracts decides whether the 600 strike acts like a launch pad or a magnet.

Why the effect is often smaller than it sounds

• Flow is two-sided. Cboe’s 2023 study of SPX 0DTE found customer buying and selling close to balanced. That left market makers with a small net position, a fraction of a percent of daily S&P 500 futures liquidity.
• Open interest misses it. Open interest is counted overnight. A contract opened and closed the same day never appears in it, so a gamma model built on open interest alone sees little of today’s 0DTE positioning. Some tools estimate it from intraday trades instead.
• Bigger forces exist. Futures trading, portfolio rebalancing and news can dwarf 0DTE hedging on most days.

The fair summary: 0DTE hedging can matter near large strikes late in the day, especially when positioning is one-sided, but it is not the hidden hand behind every move.

What to watch on a 0DTE day

• Large strikes near the price. The closer a heavy strike is to the price, and the later in the day, the more its hedging can matter.
• The gamma flip. Trading above or below it changes whether hedging is expected to calm moves or extend them.
• The clock. The last hour is when gamma, decay and unwinding are strongest, and when moves through a strike can be fastest.
• Scheduled events. An inflation report or a Fed decision can carry price far past any strike.
• The risk itself. A 0DTE option can lose its whole value within hours, so anyone trading them should size each position as if that will happen.

Same-day options also make it easy to try to win a loss back before the close. That is a psychology problem rather than a data one: how to stop revenge trading and overtrading covers the practical side, and our Trader Psychology Field Guide covers revenge trading and position size in its later volumes; Volume I is free.

0DTE in MomoEdge

MomoEdge’s PRISM grid shows gamma by strike for each expiration, and its 0DTE view narrows it to today’s expiration, or the next one. The GEX tab marks the walls and the gamma flip for one ticker, updating through the session. The GEX tab lesson explains how to read those levels. The $10K account shows every trade our team takes with real money, winners and losers, before commissions and fees. If you want to watch same-day positioning live, you can see what the terminal includes.

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