0DTE Options Trading Guide
Key Takeaways
0DTE stands for "zero days to expiration" and refers to options contracts that are set to expire on the same day that they are traded.
0DTE options are typically used by experienced investors and traders who are comfortable with high risk and have a thorough understanding of options trading.
When trading 0DTE options, investors should be prepared to act quickly and monitor their positions closely, as the price of the option can change rapidly as the expiration time approaches.
What Does 0DTE Mean?
The 0DTE meaning is options that expire in 0 days or the same day.
0DTE options trading is a popular strategy amongst premium sellers, but you must know how to manage your risk.
What is 0DTE Options Trading?
0DTE options trading is when you buy or sell options that expire the same day.
Unlike trading options that expire in weeks or months, you must monitor 0DTE options throughout the whole trading day since you cannot hold them overnight.
Best Ticker to Trade 0DTE Options
The most popular ticker for trading 0DTE options is the SPX. This is because SPX has the most liquid options and offers 0DTE expirations for each trading day of the week.
Most other equities only provide options that expire on Friday.
SPY also offers 0DTE options daily, but you will spend 10x more commissions on SPY since it is 1/10th the size of SPY.
Buying vs. Selling 0DTE Options
0DTE options trading is essentially a fight between theta and gamma.
The option buyers will win if the market moves more than its implied move.
If the market doesn’t move a lot and stays within its expected move, the option sellers will win.
0DTE Options Trading Strategies
The iron condor and iron butterfly are the most popular 0DTE options trading strategies. You can buy or sell iron condors and iron butterflies.
Since most 0DTE traders sell options, we will cover the short iron condor and short iron butterfly.
Iron Condor
A short iron condor involves selling an OTM call and put, then buying further OTM calls and puts to reduce margin requirements and hedge.
Iron Butterfly
An iron butterfly is when you sell the ATM call and put with the same strike, then buy OTM calls and puts to reduce buying power reduction and hedge the short options.
Risk Management for 0DTE Options Trading
0DTE options trading is risky if you don’t understand the risks involved. If the market shoots quickly in either direction, your short option can get crushed and show significant losses.
Therefore, 0DTE options traders manage risk by setting stop losses to put a cap on the risk.
The most common stop losses are between -100% to -200% on the short options.
For example, if you sell a put for $1.00 on SPX, a -200% loss will be set at $3.00.
Most 0DTE options traders set individual stop losses on the short call and put rather than on the entire iron condor.
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