0DTE Flow and Intraday Gamma Effects

Same-day-expiring options — "0DTE" — now make up a large share of daily volume in the biggest US index options. Because so much of that volume is bought from and sold to dealers who hedge their resulting exposure in the underlying index, the collective hedging activity has become large enough to leave a visible fingerprint on how the index itself moves during the day.

Long gamma versus short gamma hedging

A dealer who has sold options to the market is typically short gamma: as the underlying rises, their hedge requires buying more of it to stay delta-neutral, and as it falls, selling more — hedging that pushes in the same direction as the move and can amplify it. A dealer who has bought options from the market (common when retail flow is heavily buying puts or calls that dealers absorb on the other side) is long gamma: their hedge requires selling as the underlying rises and buying as it falls, which damps the move. This mechanism is the same one covered generally in Gamma Scalping, scaled up to the size of an entire index's daily options flow.

Worked example

On a day where 0DTE call buying from retail and momentum traders dominates flow, dealers end up net short a large amount of gamma on an index around the current level. As the index ticks up through the morning, dealers must buy futures to stay hedged, and that buying itself pushes the index higher, which forces more buying — a feedback loop that can produce an outsized afternoon rally on no particular news. On a different day, if put buying dominates and dealers end up long gamma instead, a similar-sized early dip gets bought back by dealer hedging, and the index chops in a narrower range than it otherwise would.

What this means in practice

Traders and researchers estimate the aggregate dealer gamma position from public options open interest and volume data, and use it as a rough forecast of whether a given day is likely to see amplified or damped intraday moves — a genuinely useful, if imprecise, input alongside more traditional volatility forecasts. Because 0DTE options carry very little time value, dealer hedging in this bucket needs to be far more responsive to small underlying moves than hedging a longer-dated option would, which is part of why 0DTE flow specifically, rather than options in general, has become associated with this effect.