In 2025, global markets are being reshaped not just by interest rates or GDP data, but by how people trade.
Record options activity, the explosion of “zero-day to expiry” (0DTE) contracts and fragile liquidity conditions are turning intraday moves into full-blown volatility clusters.
This FxCapPro report looks at how the options boom is changing market behavior—and what that means for risk and opportunity.
1. A market built on options
Options volumes have been climbing for years, but 2025 marks an inflection point:
- At industry conferences, Cboe data show options trading averaging about 59 million contracts per day, roughly 20% higher than 2024, with volumes hitting records for a sixth straight year.
- Short-dated “0DTE” options on indices like the S&P 500 have grown more than five-fold in three years, now averaging nearly 2 million contracts a day, with retail traders estimated to represent 50–60% of flow.
This shift means a bigger share of daily price action is being driven by gamma, hedging flows and intraday positioning, rather than traditional buy-and-hold investors.
2. Retail investors and the hunt for volatility
The rise of mobile brokerages and social trading has put derivatives into the hands of millions of retail participants:
- A 2024 global survey across 13 markets finds retail investors increasingly active in complex products, reflecting a broader “democratization” of capital markets.
- Academic work on retail options trading shows that small investors concentrate their options activity around events—like earnings—with expected volatility spikes, often favoring short-dated contracts.
In 2025, this behavior intersects with 0DTE products:
- MarketWatch reports that over 61% of S&P 500 options trades are now in 0DTEs, with many retail traders using them for speculative bets or income-style strategies.
The result is a market where event-driven and intraday flows can dominate, compressing what used to be multi-day moves into a few hours.
3. Liquidity looks deep—until it doesn’t
Headline liquidity in major markets still appears strong, yet the underlying structure is becoming more fragile:
- The IMF’s latest Global Financial Stability Report warns that financial-stability risks remain elevated, citing stretched valuations, rising sovereign stress and the growing role of non-bank financial institutions.
- A separate IMF analysis highlights that banks’ exposure to hedge funds and private-credit funds—about $4.5 trillion in the US and Europe—could amplify market downturns.
- Research for the Bank for International Settlements finds that liquidity is increasingly “fragile”: average bid–ask spreads may look tight, but market depth can vanish suddenly when volatility spikes or when market-makers hit risk limits.
When you combine fragile liquidity with concentrated options positioning, sharp intraday swings become more likely. Hedging flows linked to 0DTE options can accelerate moves in either direction when the market breaks key strike levels.
4. Volatility regimes in the options era
4.1 Low realized, high potential volatility
Paradoxically, many periods still show muted realized volatility—even as economic and political uncertainty remain high. The IMF notes that equity valuations, especially in technology, look stretched relative to the underlying macro backdrop.
Why hasn’t volatility exploded?
- Systematic selling of options (including intraday 0DTE premium selling) can suppress realized volatility—until a shock forces these positions to unwind.
- Central banks have become more transparent, reducing surprise rate moves, which historically fueled volatility spikes.
This creates a “compressed spring” effect: volatility may stay low until a combination of macro shock, regulatory headline or crowded positioning forces the market to reprice risk.
4.2 Volatility clusters, not smooth trends
In an options-driven market, volatility tends to appear in clusters:
- Around macro releases (CPI, payrolls, central-bank meetings).
- Around corporate events (mega-cap earnings, AI or policy news).
- Around technical levels where large option open interest is concentrated.
Instead of a gradual pickup in volatility, traders often face sudden bursts when hedging flows flip direction as prices move through key strike zones.
5. What this means for traders and investors
From FxCapPro’s perspective, the 2025 landscape rewards participants who treat volatility and liquidity as core variables, not afterthoughts.
5.1 Position sizing and leverage
- With 0DTEs and highly leveraged instruments, small timing errors can produce outsized losses. Position sizes that seemed reasonable in a low-vol regime may be too large when volatility clusters.
- Risk budgets should be expressed not only in nominal size but also in vega, gamma and intraday P&L variability.
5.2 Scenario planning around events
Given the concentration of options flow around events:
- Build explicit scenarios—“hot,” “cold” and “in-line” outcomes—for major data releases and earnings, and estimate how implied volatility and spot could react in each case.
- Consider pre-event scaling down of positions when options markets are clearly pricing tail risks.
5.3 Liquidity as a trade variable
- Always ask: what happens if I have to exit this position into a stressed tape?
- Use multiple liquidity measures—depth at best bid/offer, average volume, and historical slippage during volatile days—when choosing instruments and venues.
5.4 Respect the feedback loop
Options flows and spot price are now locked in a feedback loop:
- Rising spot can trigger dealer hedging that accelerates the move upward when they are short gamma.
- In a sell-off, the same mechanics can deepen downside moves.
Monitoring open interest by strike and expiry, plus intraday changes in implied volatility, can provide early hints of where these feedback loops might kick in.
6. How FxCapPro views the road ahead
FxCapPro expects the options boom and retail participation to remain structural features of global markets:
- 0DTE utilization is likely to expand to more ETFs and single stocks, as exchanges roll out additional expiries.
- Non-bank financial institutions and leveraged funds will continue to intermediate a growing share of liquidity, increasing the system’s sensitivity to shocks and sudden de-risking.
That doesn’t automatically imply a crisis, but it does mean:
- Volatility is more likely to arrive suddenly rather than build gradually.
- Traders who understand microstructure, options positioning and liquidity dynamics will be better positioned to navigate 2025’s opportunities and risks.
Final thoughts & disclaimer
The defining theme of today’s markets is not just “higher for longer” interest rates or AI-driven valuations; it is the options-led rewiring of volatility itself. For traders and investors, adapting to this reality—through smarter risk management, event planning and an explicit focus on liquidity—is no longer optional.
