Trading 0DTE's: getting your feet wet, without drowning - part 1
Koen Hoorelbeke
Investment and Options Strategist
Résumé: In the ever-evolving landscape of options trading, few strategies have garnered as much attention -and debate- as Zero Days to Expiration -0DTE- options. In this in-depth guide, we aim to demystify the hype surrounding 0DTE options and provide a balanced, educational perspective. The goal of this guide is simple - to equip you with the knowledge and tools you need to decide if 0DTE options trading is a road you're willing to travel. By the end of this guide, you should have a well-rounded understanding that empowers you to make informed decisions on whether 0DTE options trading fits into your investment or trading strategy.
Trading 0DTE's: getting your feet wet, without drowning - part 1
1. Introduction
2. What are 0DTE's?
3. A little history about 0DTE's
4. Why 0DTE's?
- Time Efficiency: With an expiration date set on the same trading day, 0DTE options offer an opportunity for quick decision-making and potentially rapid returns. This is especially advantageous for premium sellers, who can capitalize on the extremely fast theta decay. Remember: by the end of the day, your option doesn't exist anymore, meaning that what premium you received when you sold this option, you will get to keep (considering the option was sold Out-the-money and it still is at the end of the day)
- Lower Premiums: The shorter expiration timeline often results in lower premiums compared to options with longer expiration dates. Have a look at the screenshot below. In this example you clearly see that the price of an at the money SPX 4515 call with a 1 day expiration is a lot cheaper than that same call with an expiration of 11 days. So if you're a daytrader and you want to buy this option, it's clearly more cost-efficient to buy the option with the closer (same day) expiration.
- Flexibility: 0DTE options enable traders to capitalize on short-term market movements without the long-term commitment that other options require.
- Hedging capabilities: For investors and traders looking to hedge against intraday risks, 0DTE options provide a targeted solution. Imagine it's Tuesday and the FOMC is about to release an important inflation number. Your portfolio is positively correlated to the SPX (meaning: if the SPX goes up, the value of your portfolio is also going up to a certain degree). But you expect that the outcome of todays FOMC news release could be negative. By buying a put with today's expiration, you could hedge the possible negative effect of that news event.
5. Do we have 0DTE's at Saxo?
Ticker | Name | Contract Size |
SPXW:xcbf NDXP:xcbf XPS:xcbf XND:xcbf RUTW:xcbf QQQ:xcbf SPY:xcbf IWM:xcbf AEX:xams MOA:xams ES:xcme MES:xcme NQ:xcme MNQ:xcme | S&P 500 Index Weekly options NASDAQ 100 Index Weekly Options S&P 500 Mini Index options Nasdaq-100 Micro Index Options Russell 2000 Index Weekly Options Invesco QQQ ETF Weekly Options SPDR S&P 500 ETF Weekly Options iShares Russell 2000 ETF Weekly Options AEX Index Options Micro AEX Index Options E-Mini S&P 500 Futures Options Micro E-Mini S&P 500 Futures Options E-Mini NASDAQ-100 Futures Options Micro E-Mini NASDAQ-100 Futures Options | 100 100 10 10 100 100 100 100 100 10 50 5 20 2 |
Special note on AEX options and instrument search
6. For who?
- Active traders
- Premium sellers
- Experienced options traders
- Institutional investors
- Risk-averse investors (with caution)
7. Fancy trying? Beware!
- Complexity
- Financial risk
- Emotional toll
- Impact of market events
8. Which are the most common strategies?
- Buying and selling long options
- Defined risk strategies
- Selling premium
- Delta neutral strategies
- Spreads and butterflies