The book 0DTE Options Trading How it Works

0dte

1. “0DTE options” are options contracts with zero days to expiration (DTE), meaning
they expire that same trading day.
0
0DTE
Days to Expiration
30+
Monthly
365+
LEAPS

2. They’re Cheap
Longer-term options are more expensive. 0DTE options
are much more accessible for small account traders.
QQQ Price: $349.20
0 DTE 350 Call: $1.10 (Cost = $110)
18 DTE 350 Call: $7.30 (Cost = $730)
81 DTE 350 Call: $16.00 (Cost = $1,600)

3. DTE 0 18 81
350 Call Price $1.10 $7.30 $16.00
Price Change w/ $1 QQQ Change ±$0.50
% Change ±45% ±7% ±3%
FAST Price Movements
(Volatile)
When the stock price moves, short-term options experience much
larger price changes (in % terms) compared to longer-term options.
QQQ at $350, Estimated 350 Call Price Change (QQQ ±$1)

4. High Liquidity
0DTE options on major stock index ETFs (SPY, QQQ, IWM) are heavily
traded, resulting in tight bid/ask spreads and the ability to move large
contract quantities easily.

5. End the Day in Cash
0DTE option positions are closed the same day, eliminating
overnight market risk.

7. ATM Call Purchase
SPY begins the day around
~$422.
The 422-strike call option went
from $1.20 to ~$9.00 in a
matter of hours as SPY ripped
higher.

8. October 6th, 2023
SPY begins the day around
~$422.
The 430-strike call option went
from pennies to ~$1.20 and
back to zero.
The volatility of 0DTE options
combines huge return
opportunities with the risk of
complete loss.

9. October 6th, 2023
The 422-strike puts started the day
near $1.75 per contract and
expired worthless.
The 422 puts lost over 50% of their
value in the first couple of hours of
the session.
If you’re wrong directionally, you
lose money very quickly. The
timing of entries and
management of losers is critical.

10. Time Decay
You can SEE the options decaying
minute by minute when trading 0
DTE options.
Here, SPY starts at $424, trades
lower, then exceeds $425 later in
the day.
The 425 call lost 30% of its value
while SPY traded from $424 to $425
because of the rapid time decay.

12. Because 0DTE options are cheap, the average trader can buy more contracts as
compared to longer-term options.
More contracts allows for more flexible and strategic trade management.

13. Starting Position: 10x Contracts at $1.00 (-$1,000)
Set Stop-Loss at 30% ($0.70)
Position Up 20%: Sell 5x Contracts at $1.20 (+$600). 5 Left.
Move Stop-Loss Higher or to Breakeven ($0.90 - $1.00)
Position Up 50%: Sell 3x Contracts at $1.50 (+$450). 2 Left.
Move Stop-Loss to +20% ($1.20)
Initial capital + $50 taken out of trade
Runners: The remaining 2 contracts can be held as “runners,“ or
contracts that held to push for bigger profits on the trade (100%+) since
they are now “risk-free“ with the profits taken out of the trade and the
stop-loss moved to a profitable exit price.
The trade was essentially de-risked at the first profit target with the stop
being moved to breakeven.

14. Starting Position: 10x Contracts at $1.00 (-$1,000)
Set Stop-Loss at 30% ($0.70)
Position Up 20%: Sell 5x Contracts at $1.20 (+$600). 5 Left.
With half the position closed at a 20% gain, the remainder of the
position can be closed at a 20% loss and the entire trade would break
even:
Sell 5x Contracts at $1.20: +$600
Sell 5x Contracts at $0.80: +$400
Net P/L: $1,000 out - $1,000 in = $0
Which means if you close a portion of the position for profits and move
the stop-loss for the rest of the position to breakeven, you make money.

15. Volatility
Rapid Time Decay
Psychological Health