The S&P 500 fell 0.87% to 7,641.16 on August 20 as the VIX declined 5.5%, illustrating how short-term options strategies influence broader market dynamics. Zero-days-to-expiration (0DTE) options on the S&P 500 now routinely represent 40–50% of total daily options volume, up from historical averages, according to market data.
Options dealers, or market makers, hedge their exposure through delta-neutral strategies, adjusting futures positions as underlying prices move. This hedging activity is magnified by gamma—the rate of change in an option’s delta—which governs how quickly dealers must rebalance their hedges. A 0DTE at-the-money call option can swing from a 0.50 delta to 0.90 delta with just a 0.5% move in the index, forcing dealers to buy or sell futures more aggressively.
In regimes where dealers are collectively long gamma, their hedging behavior tends to dampen volatility by selling into rallies and buying into dips, a phenomenon known as gamma pinning. This can compress price swings and pull the index toward strikes with heavy open interest at expiration. Conversely, when dealers are short gamma, concentrated one-sided call buying at out-of-the-money strikes can trigger a gamma squeeze, forcing dealers to purchase futures to cover their positions and accelerating upward momentum.
The transition between these regimes is marked by the zero-gamma line, a threshold where the market shifts from net gamma-long to net gamma-short. Analysts note that the surge in 0DTE trading has intensified these effects, making intraday volatility more sensitive to dealer hedging flows and option positioning.
