The Top 3 0 DTE Options Trading Strategies

Summary

In this video, trading experts Mike Bella Fury and Seth Freudberg break down the exciting world of zero DTE (zero days till expiration) options. They explain three powerful strategies to trade these options effectively: the Credit Spread, Iron Condor, and Calendar Spread. These strategies are designed to minimize capital requirements while offering quick profits on the same day, with zero overnight risk. The video also explores how zero DTE options provide frequent opportunities, making them ideal for retail traders looking to generate consistent income. With clear examples and in-depth analysis, this video helps viewers understand how to use zero DTE options to their advantage.

Takeaways

• 😀 Zero DTE options are options that expire on the same day they are traded, providing traders with quick outcomes and no overnight risk.
• 😀 A credit spread strategy involves selling a higher strike price option and buying a lower strike price option, resulting in a net cash inflow.
• 😀 With a credit spread, traders can potentially keep the net cash inflow as profit if the options expire worthless by the end of the day.
• 😀 The iron condor strategy is suitable for range-bound markets, involving selling both a call and a put while buying further out-of-the-money options for protection.
• 😀 An iron condor works best when the market remains within a tight range, allowing traders to keep the initial cash inflow as profit.
• 😀 A calendar spread involves selling an option expiring the same day and buying the same strike option expiring the next day, taking advantage of the value difference between the two.
• 😀 In a calendar spread, the sold option can lose all value by the end of the day, while the bought option retains some value due to its exposure to the next day’s movement.
• 😀 The calendar spread can yield large profit percentages due to the time value decay of the short option and the retained value of the long option.
• 😀 Zero DTE options allow traders to execute strategies more frequently (around 250 opportunities per year), offering statistical advantages compared to traditional monthly expiration options.
• 😀 Mastery of zero DTE strategies like credit spreads, iron condors, and calendar spreads can lead to significant income from options trading, potentially transforming a trading account.

Q & A

What are Zero DTE options?

Zero DTE options are options that expire on the same day they are traded, meaning they have zero days left until expiration. These options provide traders with quick returns, typically within the same trading day.

Why are Zero DTE options appealing for traders?

Zero DTE options are attractive because they require less capital compared to longer-dated options, and they offer traders a clear outcome within the same day with no overnight risk.

What is the main advantage of trading Zero DTE options compared to traditional options?

The main advantage is the ability to execute multiple trades within a single year (about 250 opportunities), compared to only 12 expiration dates in traditional monthly options. This frequency allows traders to capitalize on short-term market movements more often.

What is a Credit Spread strategy in Zero DTE options?

A Credit Spread involves selling a put option at a higher strike price and buying a put option at a lower strike price, both within the same expiration day. This strategy provides an immediate cash inflow and is profitable if the underlying asset stays above the sold put's strike price by the end of the day.

Can you explain how the Credit Spread strategy works with an example?

For example, a trader sells a 455 put for $9.55 and buys a 4490 put for $4.35. The net inflow is $520, and the trader risks $980. If the asset closes above the 455 strike, both options expire worthless, and the trader keeps the $520 profit, which is more than a 53% return in a single day.

What is the Iron Condor strategy in Zero DTE options?

The Iron Condor strategy is used when a trader expects the market to remain range-bound. It involves selling both a call and a put at different strike prices and buying protective calls and puts further away. The trader profits as long as the underlying asset remains within the set price range.

Why is the Iron Condor strategy suitable for a listless or range-bound market?

The Iron Condor works well when the market shows little movement because the trader profits if the underlying asset remains within a defined range, minimizing risk in a stagnant market.

How does the Calendar Spread strategy work in Zero DTE options?

In a Calendar Spread, a trader sells an option that expires the same day and buys the same strike option with a longer expiration. The strategy profits from the difference in time decay, as the sold option loses value quickly, while the bought option retains value due to its later expiration.

Can you provide an example of how the Calendar Spread works?

On October 16th, a trader sells a 4375 call expiring that day for $10.70 and buys a 4375 call expiring the next day for $18.50. The initial net cost of the spread is $7.80. At the end of the day, the sold call expires worthless, while the long call retains some value, resulting in a profit of $5.55 or a 71% return.

What makes the Calendar Spread a profitable strategy on the same day?

The key is that the sold call option expires with no value if out-of-the-money, while the bought call retains value due to its longer expiration, creating a profit from the time decay difference between the two options.