analysts at JP Morgan have reportedly pointed out that trading zero days to expiration options, better known as 0DTE Options have the potential to significantly exacerbate intraday market declines.

The 0DTE options expire on the same day they are traded. For a trader to profit, the movement of the underlying asset should be rapid. These instruments are relatively attractive to option writers or sellers taking a stand and trying to collect the rapidly decaying bounty.

Also read: How to trade options for beginners

Scenarios: In a Monday note, JPM analysts said they had estimated 0DTE options could hit a 5% daily decline in a highly critical scenario S&P500 index into a 25% drop – a magnitude of decline not seen since Black Monday 1987 crashas the index fell 20.5%, Reuters reported.

Analysts anticipate such a scenario if the S&P 500 plunged 5% in five minutes, triggering $30.5 billion in 0DTE options-related trading, which in turn would add another 20 percentage points to the index’s decline.

If the S&P 500 loses between 1% and 5% in five minutes, it could result in the liquidation of positions in the $6.6 billion range.

The analysts also noted that retail traders were not the primary driver of volume growth in 0DTE options. Retail investors accounted for about 20% of the SPDR S&P 500 ETF Trust SPY Option volume and just under 5% of S&P 500 options on the same day.

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