Pros Share Five Proven Tactics for Trading 0DTE Options
Pros Share Five Proven Tactics for Trading 0DTE Options
By:Eric Villa
The initial implied volatility is typically more than double that of monthly cycle options, dramatically changing the way traders approach them
0DTE options offer traders the potential for significant gains with minimal capital investment. But their initial implied volatility is typically more than double that of monthly cycle options, dramatically changing the way one approaches trading them.
Through our research, the tastytrade team has developed tips and best practices that put the odds in your favor when repeatedly trading 0DTE options. Before we check them out, let’s pause for a definition.
0DTE options contracts are equities that expire at the end of the current trading day—thus the word “zero” comes into play. Here are our thoughts on trading them.
How we trade 0DTE options neutrally
A few months into our 0DTE journey, tastylive CEO Tom Sosnoff found he was consistently making profits from daily butterflies. 0DTE butterflies are a low-cost strategy that enables traders to play the expected range of the market every day. The price of butterflies is affected by the expected move of the day, with larger expected moves resulting in cheaper butterflies.
If you’re looking to trade a neutral strategy in 0DTE options, butterflies have become a critical part of our toolkit.
How we trade 0DTE options directionally
Selling vertical spreads enables traders to bet on a directional move in the market while also potentially winning if the stock stays the same by expiration. At tastylive, we’ve been using vertical spreads to significantly reduce the amount of capital required to trade, compared to naked options. They can be normalized to reduce capital requirements to a few hundred dollars to a thousand dollars.
0DTE (Days to Expiration) spreads have 10 times the directional exposure of our best practice of 45 DTE spreads because of gamma risk. Traders should be aware of the increased risk when trading 0DTE spreads.
Zero DTE spreads have around 1/8th the credit of 45 DTE spreads but offer the potential for faster profits because of the shorter expiration timeframe.
A talk with Sylvia Jablonski
As the 0DTE craze began to mature, we began to see institutional investors take a liking to daily expirations. In our interview with Sylvia Jablonski, CEO of Defiance Exchange-Traded Funds, we opened the hood and revealed the mechanics that underlie the ways institutional funds use 0DTE options.
To hear our full interview with Jablonski, be sure to watch the video above.
tastylive’s 0DTE breakthrough, explained
After nearly a year of data-backed 0DTE options research, we found a high-probability strategy that may become our best practice for trading 0DTEs. Our secret to winning 0DTEs? Aggressive management.
Managing winners is crucial for maintaining high probabilities of profit when trading zero DTE or longer-dated options. Traders who consistently reenter winning zero DTE trades tend to generate larger profits than those who are more passive.
To understand tasty’s data-backed approach to trading 0DTE options, watch our full research study above.
Eric Villa is a YouTube specialist at tastylive.
For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.
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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.