Yesterday (11.09) was particularly good for 0DTE trading with large movement on SPY, QQQ, NVDA and many others.
Now suppose someone bet right, bought OTM or ATM 0DTE options on such a day and now towards the end of the day they won, the contracts are now ITM by a fair amount.
Who is buying these ITM contracts 1 hour or minutes before closing ? Is it for rolling ? Hedging ? I'm thinking there could be a scenario where few would like to buy them and even if you made unrealized gains on such a day you can end up with them expiring. Is this possible ?
Who is buying 0DTE ITM near the end of the trading day ?
byu/citit inoptions
Posted by citit
4 Comments
Asked the same question before myself. The possible answers I got are:
– The option seller buying to close the losing position so they doesn’t lose more money.
– Market makers with their delta neutral strategies and their obligation to provide liquidity to the market.
– Liquidity, options ensure 100 underlying assets are available to buy at the same strike, which can be difficult to buy them from the regular market
I don’t ask questions
Market making hedge funds closing short positions. Imagine they are only assigned at 1 cent loss, this is a dollar for every contract. If you had sold 1m contracts – boom, you lost 1m dollars by not closing your positions.
Most brokers will margin-call such positions if the account does not have sufficient funds to exercise it. These usually happen about 10–20 minutes before markets close.
Most day-traders also don’t stay with positions overnight, so they have an automatic “close all positions” happening towards the end of the day.