Will the volatility of NVIDIA and Tesla be amplified? The popular end-of-term options on Wall Street are expected to expand to individual stocks
Based on the earliest expectations, single-stock options on US stocks are likely to be introduced in late 2025. Some advocates suggest initially limiting the release to a few stocks to give investors time to adapt. Over the past year, several heavyweight Wall Street companies have discussed the pros and cons of introducing single-stock options. Options on NVIDIA and Tesla are expected to have daily expiration dates
Zero-day-to-expiry options (#0dte) in the U.S. market became popular in 2022, driving record trading volumes in the options market. Now, Wall Street is seeking to further intensify the craze for zero-day-to-expiry options.
Currently, zero-day-to-expiry options are mainly limited to options linked to indices such as the S&P 500 or Nasdaq 100. These options allow investors to bet on whether a stock market index will rise or fall by the end of the day.
The next breakthrough sought by Wall Street may be individual stock zero-day-to-expiry options based on stocks such as Tesla or NVIDIA. At present, individual stock options expire once a week, usually on Fridays. To introduce zero-day-to-expiry options for individual stocks, exchanges would need to add option expiration dates from Monday to Thursday.
Reportedly, over the past year, several heavyweight Wall Street companies have discussed the pros and cons of introducing zero-day-to-expiry options for individual stocks in closed-door industry meetings:
Brokerages such as Robinhood, Schwab, Tastytrade, and E*Trade under Morgan Stanley have called for caution, fearing strong customer backlash if investors' options trading fails.
Other companies, including major options market maker Susquehanna International Group and Nasdaq, are actively pushing to introduce daily expiration mechanisms for individual stocks. Market makers and exchanges are expected to gain more profits from the further development of zero-day-to-expiry options.
Individual stock zero-day-to-expiry options are expected to be launched as early as later in 2025. Some advocates suggest initially releasing a limited number of stocks to allow investors time to adapt.
Executives in the Wall Street financial industry hope that the introduction of individual stock options will trigger a trading frenzy. However, this will also bring new risks to investors, especially on days when companies release earnings reports. Currently, individual stock options expire on Fridays, but few companies release earnings reports on Fridays, so the impact of earnings reports on zero-day-to-expiry options is limited. In the future, once individual stock zero-day-to-expiry options are introduced, more options will expire on the same day with significant post-market price fluctuations.
When index options expire, funds flow into or out of investors' brokerage accounts through cash settlement. Individual stock options, on the other hand, are settled through stock trading, which brings potential risks to investors.
For example, if an investor holds 1 contract of NVIDIA call options with a strike price of $105. If the closing price of NVIDIA on the option expiration date is $106.5, the cash in the investor's brokerage account will decrease by $10,500, and they will receive an additional 100 shares of NVIDIA. This call option exercise is profitable because the stock price exceeded the strike price.
However, if after-hours NVIDIA releases significant news causing the stock price to drop to $100, purchasing NVIDIA shares at $105 would no longer be attractive.
Some investors can avoid this situation by sending a "do not exercise" instruction to their brokerage. However, the ease and timing of sending such instructions vary among brokerages. Some brokerages set the deadline at 4 p.m. Eastern Time, meaning clients must make decisions without knowing the earnings resultsOptions were once seen as complex financial instruments, only suitable for professional traders, but in recent years, options have become increasingly popular among retail investors. Over the years, the options market has evolved, offering more frequent expiration dates for trading, from quarterly, to monthly, to weekly, and now in some cases even daily.
The rise of end-of-day options has raised concerns for some Wall Street institutions, such as JP Morgan, which believes that this could exacerbate broader market volatility.
End-of-day options have attracted enthusiastic retail investors, although skeptics consider it a form of gambling