Order Flow Toxicity and Cross-Market Price Impact in Zero-Day SPX Options

Abstract

Zero days-to-expiration (0DTE) options have grown to account for over half of all S&P 500 Index options volume. We investigate the largely unexplored question of whether net directional delta flow in SPX options predicts subsequent movements in E-mini S&P 500 (ES) futures prices, and how this relationship varies across expiration horizons. Using SPX trade data and minute-level CBOE quotes over the period from January - June 2024, we construct minute-frequency net signed delta across five DTE tranches and regress forward ES futures returns at various horizons ranging from 1 to 120 minutes. To address the numerical instability of Black-Scholes pricing near expiry, we implement a non-dimensionalized Newton-Raphson solver that computes implied volatility and delta for each 0DTE trade. To infer trade direction, we introduce a delta-adjusted variant of the Lee-Ready algorithm that corrects for quote staleness, as well as a time-sensitive tick rule. We find that 0DTE flow produces statistically significant and persistent price impact: approximately 0.48 ES points per standard deviation of net signed delta flow at the one-minute horizon, with no reversion over two hours. In contrast, longer-dated options tranches show near-zero effects. For 0DTE flow, a cumulative impulse response analysis also reveals that nearly all impact arrives in the first minute, and a backward placebo test confirms that forward predictive power dominates reverse-causal momentum effects. The persistence of impact is consistent with two complementary channels -- informational signal and near-contemporaneous dealer hedging -- and suggests that 0DTE options play a meaningful role in short-horizon S&P 500 price discovery.