An introduction to 0DTEs

An introduction to 0DTEs

Saxo Be Invested

Saxo Group

What are 0DTEs? 

Zero Days to Expiration, or 0DTE options, may sound complex, but they are fundamentally the same as any other options contracts in the market. What sets them apart is their expiration date, which is set to occur on the same day they are traded. This unique feature compresses the timeline for potential profits or losses, making them a point of interest for traders looking for quick outcomes. 

It's worth noting that the term "0DTE" can be somewhat misleading. You can still open and close positions on these options just as you would with any other options that have longer expiration dates. In essence, they are daily options, operating within the constraints of a single trading day. The term "daily options" might be more descriptive, but "0DTE" has a certain allure that has captured traders' imaginations. 

By understanding that 0DTE options are essentially the same as any other options, just with a unique expiration parameter, traders and investors can approach them with the same foundational knowledge they would apply to other options strategies. 

Advantages of trading 0DTEs 

0DTE options have become a point of interest for a specific segment of traders and investors, and for compelling reasons. Here are some of the advantages that make these options particularly appealing.  

  • 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. KOHO-2023-09-04-00-SPX-OptionChain
  • 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. 

Understanding why one might engage in 0DTE options trading is crucial for assessing whether this strategy aligns with your trading or investment objectives. These advantages offer a unique set of opportunities that make 0DTE options an intriguing option for many market participants.

Risks of 0DTEs 

While the allure of 0DTE options is undeniable, it's essential to approach them with a healthy dose of caution. These options can be a double-edged sword, offering rapid gains but also posing significant risks. Here are some of the risks to be aware of:  

  • Complexity 
    Options trading is inherently complex, and the rapid time decay of 0DTE options adds another layer of difficulty. A deep understanding of options trading and its associated risks is crucial before diving into 0DTEs.  
  • Financial risk 
    The leveraged nature of options means you can lose more than your initial investment. In some cases, particularly with undefined risk strategies (naked puts, naked calls, strangles, straddles, …), losses can be substantial.  
  • Emotional toll
    The quick pace and high stakes of 0DTE options can be emotionally draining. Emotional decision-making can be your worst enemy in this fast-paced environment.  
  • Impact of market events 
    0DTE options are sensitive to market events and volatility. Even minor news can result in dramatic price swings.  

Who are 0DTE options for? 

Zero Days to Expiration (0DTE) options are versatile instruments that cater to a broad audience but are not universally suitable for every type of trader or investor. Below we identify some of the most likely candidates who could benefit from trading 0DTE options.  

  • Active traders 
    For those who thrive on the fast-paced nature of the markets, 0DTE options provide a platform for quick decision-making and the potential for rapid returns. Active traders who are comfortable with high-risk, high-reward scenarios may find these options particularly appealing. 
  • Premium sellers
    Traders who specialize in selling options for premium can capitalize on the accelerated time decay that 0DTE options offer. The quick theta decay provides an opportunity for collecting premium in a shorter time frame, making it an efficient strategy for these traders.  
  • Experienced options traders 
    While 0DTE options can be rewarding, they are best suited for those who have a solid understanding of options trading mechanics, including the Greeks, and the risks involved.  
  • Institutional investors 
    Institutional investors may find 0DTE options useful for short-term hedging or for taking advantage of specific market events. These options can complement their broader trading strategies, offering additional layers of flexibility and risk management.  
  • Risk-averse investors (with caution) 
    Interestingly, 0DTE options can also serve risk-averse investors who use them for hedging purposes. However, given the short time frame, this approach requires precise timing and should be executed with caution. It's crucial to note that 0DTE options are not recommended for beginners due to their complex nature and the rapid changes in their value.  

Before you jump into the world of 0DTE options, it's important to have a well-defined strategy and risk management plan. 0DTEs are not for the inexperienced or the risk-averse, so be sure to always keep yourself well informed of the latest market events and news so you can make the best decisions for your personal investment goals. 

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.