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Subscribe Now49%
of SPX® volume traded 0DTE
52%
annual increase in SPX® 0DTE volume since 2016
32%
of XSP® volume traded 0DTE
What is 0DTE?
Basics:
0DTE (zero days to expiry) options, sometimes referred to as “same day expiring” options, are options contracts that expire at the end of the current trading day.
Good to know:
Every option contract expires on a specific date and depending on the underlying asset, it may expire quarterly, monthly, weekly or even several times a week. A 0DTE option establishes a position on the contract’s same day that it expires, even though that specific option may have already been listed for days, weeks or months.
Keep in mind:
As expiration approaches, options near the money are extremely sensitive to movements in the underlying index - it is important to monitor your positions closely and react quickly.
The Benefits of 0DTE Trading
Outcomes Known Quickly:
0DTE allows users to take very short-term positions and hedges on the market. The outcome of the trade is known the same day, and less capital is needed than equivalent strikes with further dated expiries.
Liquidity & Lower Premiums:
0TE options tend to be highly liquid with higher trading volumes and very tight bid-ask spreads. With potential lower premiums, they can be less expensive to trade short-term volatility. But short-term options, particularly 0DTE options, can come with risks due to potential intraday volatility and limited time to expiration.
Trading Tactically:
With 0DTE options available every trading day, you have more flexibility in your trading strategy – take advantage of short-term price movements, react quickly to news events and adjust your position based on market conditions.
Popular 0DTE Trading Strategies
Overview:
Some of the most popular 0DTE strategies are selling call or put spreads, and iron condors (a call spread + a put spread of equal strike distances).
Other strategies commonly used include buying outright calls and/or puts to tactically trade around market events, and hedge longer dated portfolios.
Selling Call or Put Spreads
Overview:
You may sell a call or put spread based on your directional view of the market. A call or put spread means taking on some limited amount of market risk (the strike width) in exchange for the premium collected at trade entry.
Unlike iron condors, these are directional trades – if you think the market won’t go down then you could sell a put spread, and if you think the market won’t go up you could sell a call spread.
Call Spread
Example:
Sell 1 call short
Buy 1 call at any price beyond the short call
Profit & Loss:
The trade would become profitable if SPX moves down or stay the same, or moves below the price of the short strike. Maximum profit for a call spread is the premium received. The trade would become unprofitable if SPX moves beyond the difference or width of the strikes. Maximum loss is the width of the strikes minus the premium received.
Keep in mind:
The goal is to limit the potential max loss on the position. If the underlying asset rises slightly, the position may have a gain, depending on how far out-of-the-money (OTM) the credit spread is. If the underlying asset doesn’t move at all, the position will make money.
Put Spread
Example:
Sell 1 put short
Buy 1 put at any price further out-of-the money (OTM) from the short put
Profit & Loss:
The trade would become profitable if SPX rallies and the put spread decreases in value. The trade would become unprofitable if SPX falls, resulting in the put spread increasing in value. Maximum profit for the put spread is the premium received. Maximum loss is the width of the strikes minus the premium received.
Keep in mind:
A put spread that is initiated OTM has an increased probability of expiring worthless. Because of this, the potential profit is always less than the potential loss for OTM credit spreads.
Iron Condor
Overview:
You may buy an iron condor if you think that SPX will trade out of a specific range at expiry. If you sell an iron condor, you may think that SPX will trade within a specific range.
Example:
If you sell a 5-wide iron condor, the max loss will be $500 minus the credit received.
Profit & Loss:
The maximum loss in selling an iron condor is the (spread width of the call spread or put spread) minus premium collected at trade entry. The maximum loss in buying an iron condor is the premium paid to enter the trade.
Keep in mind:
Traders of an iron condor 0DTE strategy should actively manage their position as adjustments may be needed if the underlying asset moves outside the specific range.
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