Can the zero day option trading sweeping Wall Street trigger a frenzy in Europe like the United States, as it will land in Europe this week?

The zero day option trading sweeping Wall Street will make its debut in Europe this week, which will be a new test for the region's long struggling capital markets.

Starting from Monday, the European Futures Exchange (Eurex) of Deutsche Boerse AG will list Euro Stoxx 50 derivatives that expire every working day. US peers launched derivative contracts linked to the S&P 500 index last year, which are currently thriving.

At each trading session, European investors can buy and sell derivatives that mature on the same day, known as zero day contracts (0DTE). Their launch sparked a flood of trading activity across the Atlantic, with retail and institutional investors using them as tools for speculation and hedging. According to data compiled by Nomura Securities International, 0DTE once accounted for 55% of the trading volume of S&P 500 index options this month, setting a new historical high.

These derivatives have become so popular that some people are starting to worry that they are affecting the US benchmark stock index itself. In Europe, participants seeking signs of life in stagnant markets will closely monitor the level of demand for these contracts. But in a situation where the stock index has been underperforming for a long time, the number of new stock listings has decreased, and trading volume has stagnated, these options face a difficult battle to play their role.

Kieran Diamond, derivatives strategist at UBS Group in London, said: "Europe does not have that suppressed demand, and the S&P 500 index, as the main liquidity pool for global stock market volatility, has a very strong record.

According to data compiled by UBS, as of last Tuesday, the average daily nominal trading volume of European Stoxx 50 index options in the past month was $45 billion. The S&P 500 index's figure is close to $1.3 trillion.

Patrick Bonouvrie, head of derivatives trading for the Optiver BV European Index, said that although zero day contracts are unlikely to spark a frenzy in Europe like the United States, they may still boost trading volume, with trading professionals being the main users. Global investors are clearly inclined towards short-term options, "Bonouvrie said in an email." Zero day options allow for hedging very specific risks, such as European Central Bank events, that could not have been hedged at the same pace before.

The European Futures Exchange has previously stated that the new contract is a response to the increasingly strong demand from institutions for more short-term options. In addition to introducing zero day contracts, these derivatives will now settle at 5:30 pm CET when the stock market closes, rather than the current noon settlement. This will provide greater space for market trading activities.

However, new derivatives are unlikely to attract much interest from retail investors. The New York Stock Exchange, at the center of the frenzy, stated last week that short-term traders have become a significant driving force for the zero day option boom in the United States, but the overall participation of individual investors in European stock markets is much lower than in the United States, indicating that there is no key source of demand at all. For some people, this may not be a bad thing. US strategists speculate that due to option traders eager to hedge their positions, while traders aggressively buy and sell contracts based on intraday fluctuations, the current scale of zero day contract trading is large enough to affect the S&P 500 index. All of these are fiercely debated themes with no end in sight, but Europe is unlikely to participate in them in the short term.

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