Mastering the High-Risk, High-Reward 0DTE Trading Strategy
You’ve likely heard of options contracts that expire months down the road, but what if I told you there are options expiring today that provide major profit potential?
It’s true – it’s called the 0DTE trading strategy.
When it comes to options trading strategies, one of the most exciting and potentially profitable is ODTE trading – that is, trading options contracts on the day they expire, with zero days until expiration.
Also referred to as 0DTE options, these options contracts offer major profit potential and the chance to ride major intraday stock price swings but also a major risk if you don’t know what you’re doing. One wrong move and your account could take a major hit.
When used properly, 0DTEs can lead to huge percentage returns in a single trading session.
In this article on 0DTE trading strategy, you’ll learn all about 0DTE options explained – what they are, how to trade them, and tactics to apply them in your own trading today.
We’ll cover key questions like:
- What are zero days to expiration options?
- What is the potential of 0DTE options trading in the stock market?
- What are the risks associated with this trading strategy?
- How to trade 0DTE options – actionable day trading tactics you can start applying today
If you’re looking to get big returns in a short period by trading options that expire zero days to expiration, this guide on 0DTE trading strategy is exactly what you need.
Let’s get started!
Table of Contents
Introduction: 0DTE Trading Strategy
When discussing 0DTE trading strategies, 0DTE refers to “zero days to expiration“. In other words – these are options contracts expiring at the very end of today’s trading session.
Unlike most options plays which can stretch out weeks/months, 0DTE options offer absolutely no room for delay which is why day traders must act decisively on these options within hours as the closing bell approaches and before the options contracts expire.
This urgency creates immense pressure, but it also presents an opportunity for alert day traders to ride major intraday price swings for huge percentage returns.
Of course, such tight timelines cut both ways. 0DTE positions can also turn heavily against traders if prices reverse earlier than expected.
How Do Zero Days to Expiration (0DTE) Options Work?
An options contract provides buyers the right to trade underlying assets at preset prices during defined periods. Each contract includes an expiration date, after which, rights vanish.
For 0DTE options, that expiration clock expires today – indicating the final moments to take action.
Under such tight time constraints, seasoned 0DTE traders plot their entries/exits intraday before risk builds overnight, which allows for maximizing short-term gains as the window slams shut.
In summary – zero days until expiration options offer a vehicle for rapid profits or losses condensed into an urgent few-hour window, but you need precise execution if you want to capture fleeting opportunities before the bell.
When exploring 0DTE trading strategies, an important question is – what securities actually offer these short-term expiring options to trade?
See below…
What Stocks/ETFs have daily expiring Options?
Daily expiring options are relatively new and currently, they are available for a limited number of ETFs and stocks.
The options market favors underlying assets with high liquidity and volatility – features that draw the volume needed to tighten bid/ask spreads. This leads most daily expiring options to be found on a select menu of single stocks and benchmark index products.
The landscape of daily expiring options (0DTE) is still evolving, but here’s a breakdown of what’s currently available:
ETFs:
- Defiance Nasdaq-100 Enhanced Option Income ETF (QQQY): This is the first ETF to solely utilize 0DTE options (one-day options) on the Nasdaq-100 index, aiming to generate daily income through options strategies. It’s a relatively new offering, so be mindful of the limited track record.
Stocks:
- Highly liquid stocks like SPY (S&P 500 ETF) and QQQ (Nasdaq-100 ETF): While not directly 0DTE, these popular options have daily and weekly expiration cycles throughout the week, offering more frequent trading opportunities.
- Select individual stocks on specific exchanges: Certain exchanges like CBOE Global Markets offer “Daily Jr.” options on some stocks, expiring on Fridays. Examples include SPDR Gold Shares (GLD) and iShares Silver Trust (SLV).
Specifically, the highest volumes of 0DTE options focus on ETF giants like QQQ and SPY tracking the Nasdaq-100 and S&P 500 respectively. These massively traded funds have the liquidity and price swings needed for an active short-term options market.
Joining these ETFs are a subset of low priced, high volatility single stocks with liquidity to support daily expiry date trading because they attract consistent ADV making them prime candidates for 0DTE tactics.
So when evaluating daily expiring dailies, check if your stock broker offers them on QQQ, SPY, or other favorite swinger stocks. Focusing on liquid products with multiple competing expiry dates tightens spreads while managing risk.
What strategies can you use for 0DTE?
0DTE options, with their short lifespan and amplified volatility, demand specific options trading strategies to navigate the stock market effectively.
Here are some popular approaches:
Neutral Options Strategies:
In the face of market uncertainty, two 0DTE trading strategies offer a haven of relative calm:
- Iron butterflies
- Condor options
These multi-legged options strategies combine calls and puts at various strike prices, creating a profit zone where small price movements in either direction can generate a consistent profit.
Imagine them as protective shields, capturing gains regardless of the underlying asset’s price direction. Iron butterflies offer a defined risk and reward profile, while condors provide a more structured approach for those seeking a predictable trading approach.
Straddles and strangles are also considered two neutral options strategies that involve buying both a call and a put at the same or different strike prices, capitalizing on significant price swings regardless of direction.
But what is the best option strategy for 0DTE?
See below…
Directional Options Strategies
Seasoned options traders employ a variety of approaches here, but short-term selling 0DTE options is particularly compelling also known as ‘zeroing in on Gamma”, this non-directional option strategy involves dynamically selling premium to capture swelling time decay as expiration nears.
The concept is straightforward -volatile 0DTE premiums deflate rapidly during the session allowing sellers to buy options back cheaper than they received in credit. Rather than predicting uptrends/downtrends, the focus becomes targeting extrinsic value melt.
Other directional options strategies includes:
- Naked Calls/Puts which involves selling uncovered calls or puts, aiming to profit from a strong directional move in the underlying asset.
- Debit Spreads: These involve buying a call and selling a higher-strike call or vice versa, aiming for a smaller but more controlled profit from a directional move.
Pros/Cons of 0DTE
Like all active trading tactics, utilizing 0DTE options comes with both advantages and disadvantages. Before jumping in, options traders should weigh these pros and cons of 0DTE trading.
| Pros | Cons |
| Explosive Profit Potential: Due to dramatically accelerating time decay, 0DTE options can generate major percentage returns if traders accurately predict intraday swings before expiration. | Severe Downside Risk: While profits can balloon, [0DTE] losses are also exacerbated by the same aggressive timescale pressures when positions move the wrong way. |
| Enhanced Liquidity: Zero days until expiration contracts often maintain relatively high trading volume into expiry date which facilitates easier entries and exits. | Volatility Headwinds: As expiry nears, instability expands 0DTE bid/ask spreads, raising transaction costs and hampering efficient positioning. |
| Diverse Strategies: 0DTEs are compatible with varied options trading strategies from directional speculation to volatility plays to fit different trading preferences and risk tolerances. | Complex Mechanics: Maximizing tight-window 0DTE opportunities relies on advanced options Greeks and volatility concepts to pinpoint ideal moments. |
| Rapid-Fire Execution: The extremely compressed 0DTE timeframe suits aggressive trading mentalities requiring swift and decisive position management. | Minimal Adjustment Time: If 0DTE trades turn against you, traders have extremely limited ability to modify losing positions before terminal expiration. |
Day Trading 0DTE Options
As we’ve covered, 0DTE options center around acting within an urgent same-day window before expiration arrives, and this compressed timeframe makes day trading options a natural fit.
Options day trading allows traders to open and close options positions within the same volatile session.
When armed with the right options trading strategy, traders can ride short term volatility swings for big profits during the trading session before expiration.
Below is an actionable 6 step blueprint to apply a successful day trading options strategy with these zero days to expiration contracts. The plan involves identifying and acting on momentum shifts over 15 minute increments during the first 30 minutes of the trading day.
Key components include checking price action, confirming with indicators, strategically planning entries/exits, managing Greeks, and controlling position sizing/risk.
Here is an actionable expiry trading options strategy to apply:
- Step #1 – Establish Market Bias: Wait 15 minutes after the market opens to assess the stock price direction. Look for bullish signals like a rising 15-minute candle after the opening bell.
- Step #2 – RSI Confirmation: Use oscillators like the RSI indicator to confirm the momentum aligns with the bias read in price action and ensure the RSI is above 50, indicating bullish momentum.
- Step #3 – Entry: Buy a call option at the opening of the second 15-minute candle after the morning bell if bias and momentum align bullish.
- Step #4 – Pick Expiration: Choose the nearest daily expiration cycle to capitalize on short-term intraday trends.
- Step #5 – Take Profit: Sell to close position after seeing two consecutive 15-minute candles printing the opposite direction of your bias.
- Step #6 – Exit: Close your position before the market closes, ideally when the price reaches your profit target or triggers your stop-loss limit.
Click HERE for a detailed explanation of the 0DTE day trading options strategy using the RSI indicator.
When executed properly, this methodology gives traders an optimized blueprint to capitalize on market oscillations within a single volatile session.
Different spreads for trading 0DTE Options
Day trading 0DTE options can be a thrilling, fast-paced way to potentially capitalize on short-term market movements. However, it’s crucial to understand the risks involved and employ effective options trading strategies like spreads to manage those risks.
Here, we’ll dive into different spread options for 0DTE trading:
Bull Call Spread for Trading 0DTE Options
This strategy involves buying a call option at a lower strike price (closer to the current asset price) and simultaneously selling another call option at a higher strike price which creates a limited profit potential but also limits potential losses.
The main benefit of the bull call spread options strategy for 0DTE Options is that you can profit even from a small price movement in the underlying asset.
Bear Put Spread for Trading 0DTE Options
Short call and short put spreads target declining markets and bearish trends, synthesizing exposures that gain as prices fall by shorting closer to the money options against protective long legs.
0DTE Strategy YouTube:
0DTE Vertical Spreads
Imagine a two-legged ladder leaning against the price of an underlying asset. Each leg represents an option contract, one a call and one a put, with:
- the same expiration date – zero days from purchase (hence, 0DTE),
- but, different strike prices.
A bull call spread places the call option higher on the ladder, while a bear put spread positions the put option higher. The key difference between a single option trading strategy and a vertical spread lies in the limited risk and profit potential. You buy and sell simultaneously, essentially creating a buffer zone which means if the underlying asset’s price doesn’t move as predicted, your losses are capped.
Benefits of 0DTE Vertical Spreads:
- Defined Risk: Unlike a single option, where losses can snowball, vertical spreads limit your downside.
- Multiple Profit Paths: You can profit from both directional and sideways movements, depending on the spread type.
- Leverage: Control a larger position with less capital compared to buying the underlying asset outright.
- Short-Term Focus: Ideal for day traders seeking quick in-and-out trades.
Before trading 0DTE options on a live trading account, traders should paper trade potential options trade selections to experience how time decay will impact the 0DTE trading strategy under different scenarios. This hands-on experience working with 0DTE spreads will help anyone build the trading skills to manage the ultra-risky options trading.
Is there a best strategy for 0DTE Options
With trading an option contract with zero days to expiration, traders may wonder – which 0DTE trading strategy has highest success rate?
Known as zeroing in on 0DTE options trading, this trading tactic involves collecting premium by selling OTM call/put credit spreads targeting quick decays as expiry nears.
While many options strategies apply, selling low delta credit spreads sees particular success but there’s no single “best” trading strategy for 0DTE options because the optimal approach depends heavily on several factors, including:
- Your market outlooks
- Your risk tolerance
- Your skills and experience
- Market conditions
For example, if we have a volatile trading environment, iron condors and iron butterflies benefit from decreased volatility, while in a ranging market, the credit spreads and calendar spreads benefit from sideways price movements.
How to Choose the Best 0DTE Option Strategy
Choosing the best 0DTE option strategy is like navigating a tightrope with a blindfold – it requires careful planning, a steady hand, and a keen understanding of your own strengths and limitations. But with the right approach, you can find a strategy that aligns with your risk tolerance, market outlook, and experience level. Here’s a roadmap to help you choose the best 0DTE trading strategy:
1. Self-Assessment:
- Market Outlook: Are you bullish, bearish, or neutral on the underlying asset?
- Risk Tolerance: Can you handle high potential losses or do you prioritize capital preservation?
- Skills and Experience: Are you a beginner, intermediate, or advanced options trader?
2. Strategy Selection:
If you’re bullish on the stock price:
- Bull Call Spread: Profit from rising prices with limited risk.
- Credit Spread (selling calls): Generate income and benefit from sideways movement.
If you’re bearish on the stock price:
- Bear Put Spread: Profit from falling prices with limited risk.
- Credit Spread (selling puts): Generate income and benefit from sideways movement.
If you’re market neutral on the stock price:
- Calendar Spread: Profit from a sustained trend in one direction.
- Iron Condor: Benefit from decreased volatility and sideways movement.
Advanced 0DTE options strategies:
- Naked Calls/Puts: High potential gains but unlimited risk.
- Straddles/Strangles: Benefit from large price movements but expensive and risky.
3. Market Analysis:
- Volatility: High volatility favors iron condors, low volatility favors credit spreads.
- Liquidity: Ensure bid-ask spreads are tight for your chosen options.
Filter by these core factors when evaluating which is the best 0DTE option strategy that aligns with your trading plan. The one that checks the most boxes is likely the one optimized for you.
Final Words: 0DTE Trading Strategy
Remember, there’s no “one size fits all” 0DTE trading strategy as the best trading approach depends on your individual circumstances. One thing to keep in mind every time you trade 0DTE options is that they are highly sensitive to time decay and market movements.
By following these steps and maintaining a cautious approach, you can increase your chances of choosing the best 0DTE option strategy for your needs and navigate the exciting, but potentially volatile, world of 0DTE trading.
