The Top 3 0 DTE Options Trading Strategies

so what offers the fastest potential return in options trading zero DTE options in this video we'll explain exactly what they are and the top three strategies to trade them properly and efficiently I'm Mike Bella Fury and we're one of the top proprietary trading firms located in New York City and proud to develop num seven and even eight figure Pere Traders we hope this video helps you grow your trading account hi I'm Seth freudberg and I'm the head Trader of S&B capit options trading desk here in Manhattan and since last year there has been just an explosion in interest in day trading options that expire at the end of the day which are known as zero DTE options which stands for zero days till expiration and there are many attractive features about trading zero DTE options but I'd say the most compelling reason to trade them is that unlike most option strategies zero DTE options generally require much less Capital to trade than longer dated options and most importantly the outcome of your options trade is known to you the same day because the options expire that same day at the closing bell and so if you're successful your profits are locked in that same day and so you have zero overnight Risk by definition and so we're frequently asked to share the best zero DTE option strategies for retail Traders and investors to consider and so in this video we're going to be sharing with you the top three zero DTE option strategies and exactly how they work so stick around now if you're absolutely brand new to options trading and you don't know much about how options work and how you can trade them we've created a video for you to understand options Basics and if you click the video appearing on your screen right now it will lay the groundwork for understanding the zero DTE strategies that we'll be teaching you in this video then you can just come back and watch the video once you've watched that the first zero DTE strategy that we'll be teaching you is known as a credit sprit and so let's dive into an example of a credit spread and you'll see how easy it is to trade this option strategy and so let's head back to August 29th and as you can see the SPX index had staged a very large rally closing up over 64 points that day and so suppose that a Trader had the bias which is common that this strong rally was going to have a follow through day the next day and so the next morning he pulled up an options chain which expires that day the zero DTE options chain for August 30th and on the open that day with the index trading at 45680 he went ahead and sold a put with a strike price right below where the market was trading at that moment so he sold the 455 put receiving a price of 955 for that and he bought a put 15 points low lower down on the options chain at $44.90 and he paid a price of $435 for that and so when you do that selling a put higher up on an options chain and buying a put lower on that same options chain that is what Traders refer to as a put credit spread and so let's break down what has happened here from a cash flow standpoint and so starting with the put we sold well the price we got was 955 but remember index put options pay off at a rate of $100 per point that the index closes below the puts strike price once the options expired and so you multiply that price by 100 resulting in positive cash flow coming into your account of $955 from selling that put but we also simultaneously bought the 4490 put paying $435 for that option using the same kind of calculation and so when you net it all down you can see that we received a cash inflow of $520 for selling this put credit spread and now you can see why it's called a credit spread because your account is credited with the cash that you received from the transaction because the higher put that you sold is always going to be worth more than the lower put you buy and so the net is a positive cash flow into your account okay so let's now move forward to the end of the day and as you can see the index Clos at 45487 a bit up from its price at 10:00 a.m. and so let's take a look at how the trade came out because remember these options are zero DTE so they're expiring today and so the options can be fully valued and the outcome of the trade can be definitely determined at the end of the day and so starting out with the cash we get when we first enter the trade moving to the 455 put you can see that it expired with no value right because that put doesn't pay off anything if the index closes below its strike price on the day that it expired and since the index closed 9.87 points above the 455 strike price then that put expires worthless and so obviously the 4490 50 points further away also expires worthless resulting in both options expiring completely worthless meaning the trader can simply pocket the cash that he collected initially because the options he traded just died with no value and so that's a pretty good return in a day because he gets to keep the $520 yet he was only risking 980 which is a return greater than 53% in a single day okay so now you know how to trade put credit spreads on a zero DTE basis if you're bullish on an index and so let's now move on to the second Zer DT option strategy and that's what we'd like to share with you today it's known as the iron Condor and this particular strategy is best employed on a day when you have the sense that the market is moving kind of listlessly and might well just trade in a small range for the entire day which as you can know can happen quite frequently particularly like late in the summer when a lot of people are on vacation and also around the holidays in December by the way so during these times you'll often not always but often observe these kinds of listless trading days and so for example take a look at a chart of the SPX index on August 11th right in the middle of the summer and as you can see that index had opened at around 4450 that day and by 10: in the morning it had rallied to just over 4461 and so let's say that on that day he pulled up an options chain that expired that day the zero DT options chain in other words and with the index trading at 4461 he went ahead and sold one of those 447 5 calls which were about 15 points above where the index was trading simultaneously buying the 4485 call 10 points above that and then in exact parallel he went down to the 4445 strike and sold a put about 15 points below the current SPX price and simultaneously bought a 4435 Strike 10 points lower than that and so when he does that bracketing the market with a short call and a short put and buying a long call above the short call and a long put below the short put when he creates that combination he has executed what options Traders referred to as an iron Condor and you'll see in a minute why a Trader might do something like this on a listless trading day okay so let's calculate the cash flow of this trade and as you can see with a short 4475 call selling for 550 as we explained earlier that brings in $550 but then we turn around and pay $290 for the long protective 4485 call but on the other hand we receive 570 for the short 4445 put paying 260 for the protection of the 4435 put which net it all down results in a $470 cash inflow into your account a trade for which your broker will require you to have $530 in your account which is the trade worst case scenario okay so let's now move to the end of the day and as you can see the index did indeed remain in a pretty tight range that summer day chopping around all day until it closed at 44645 so now that the market is closed we can assign a final value to our trade which as you can see is going to be a pretty straightforward process starting with the initial cash flow of 470 you can see that both both the short and long calls at 4475 and 4485 respectively they expired above the closing price of the index and so those don't pay off anything and they simply expire with no value and for the exact opposite reason both puts expired below the index's closing price and so those in turn expire with no value as they only pay off if the closing index price is below their strike price on expiration day so in other words all four options expired worthless and the trader just gets to pocket the initial $470 cash payment he received earlier that day for entering this iron Condor and very importantly if you think about it that same thing would have been true you would have made that full $470 profit at any closing price between 4445 and 4475 which means that you don't really care if the index had rallied or sold off as long as it remained in that 30 point range between 4445 and 4475 and that's why we say that this trade is the best choice on a kind of a listless day in the market as long as the market is range bound you should win the trade Okay so we've learned about the credit spread and we've learned about the iron Condor and so the final zero DTE strategy that we'll be teaching you is known as the zero DTE calendar spread and so let's look at an example of a calendar spread so you can focus in on the actually very simple concept behind this trade so let's head back to October 16th and as you can see the SPX index opened the day rallying strongly and by 10:30 in the morning had hit 4375 point0 n and so let's say that at that time an options Trader pulled up an options chain expiring that same day on October 6 16th 2023 and he went ahead and sold the call option with a strike price right at the money the 4375 call expiring that same day at 400 p.m. receiving a price of $10.70 for that call and simultaneously he went ahead and bought a call expiring the very next day on October 16th using the same strike price 4375 but because that option expires a day later it's going to be more expensive than the option he sold and so that option had a price of $18.50 on that day and so that combination when you sell a call option that expires one day and you buy a call option that expires at the exact same strike price but expiring on a later date that combination is known as a calendar spread and because it is done in this case by using call options it's actually known as a call calendar spread okay so first of all let's make sure that you're clear about what's happened here from a cash flow standpoint so starting with the option you bought the one expiring the next day October 16th you paid a price of $1850 which as we explained before means that in dollars it's going to cost $1,850 to buy that call but you also simultaneously sold the 4375 call expiring the day before on October 16th 41070 receiving 1,070 for selling that one thus your net cost is actually only $780 which is also the worst case scenario loss on the trade okay so now let's move forward to the end of the day and on that same day October 16th you can see that the index closed at 43 73.6 3 and so looking at the options chain of our trade now that the market is closed you see the 4375 call option expiring on October 16th that one will expire with no value because the index closed below its strike price and call options only pay off if the index closes above the call strike price so that will settle for zero value whereas the long call we bought that expires the next day well there's still the possibility that the market could bounce the next day and so and this is crucial to understand the option you bought that expires the next day will still always have some value at the end of the day because the one who sold you that call has to protect himself against an up move the next day where he'll have to pay you if there is a big up move and so he's got to build a substantial remaining value into that call to compensate him for taking that risk and so as you can see that call is still trading at 1335 because the options Market just doesn't know what's going to happen overnight and up through 400 p.m. all the next day and so as a result if we look at the final valuation of the trade you can see that the long 4375 call expiring the next day is trading with a value of 1335 while the option we sold expires with no value at all zero because the index closed a few points below its strike price so it doesn't activate the calls payout at all and so subtracting out the original cost of the calendar spread that 780 you can see that the final outcome of the trade was a profit of $555 which constitutes a return of 71% in a single day and so the key to understanding a zero DTE calendar spread is to understand that an options premium will disappear to literally nothing if it expires even one cent out of the money by the end of the day whereas the long option must retain some value by the end of that day because it is exposed to the movement of the next day and therefore it is that relative difference the fact that the one you sold can lose all of its value by the end of the day while the one you bought must retain some value and so that fundamental difference between the call you sold and the call you bought is why calendar spreads can work and these kinds of very large profit percentages are possible and so what I'd like you to take away from today's video is that there are multiple ways to attack the market using zero DT options trading strategies and the credit spread the iron Condor and the calendar spread are outstanding ways to take advantage of the availability of options expirations every trading day of the year you see back in the day believe it or not for almost all indexes and stocks there was only one options expiration a month that's right one and so you only had 12 bytes at the Apple a year if you think about it which is really statistically insignificant if you wanted to execute a strategy over and over again to tap into its underlying statistical Edge whereas with zero DTE options you get about 250 bytes a year and so if you latch onto one of the strategies in this video and you become proficient in its application you could conceivably turn your options trading account into a significant source of income which is the goal of most retail Traders ultimately now if you'd like to learn three more option strategies that our prot Traders use including the unique options trick that allows you to make money while you wait to buy stocks or ETFs at the price you want and the options income strategy that allows you to make consistent money whether the market goes up or down or sideways and how to make money on a stock or index trade even if you're wrong on the direction then click the link that's appearing right now at the top right hand corner of your screen that will open up the free Workshop registration page in a new window so don't worry you won't lose this video or you can register directly for free at options.com

Channel: SMB Capital

Views: 157,494

Keywords: stock market, day trading, smb capital, trading, investing, markets, wall street, stock trading, options trading, options income, economics, finance, zero dte options, 0DTE, 0DTE strategies, options 0DTE, 0DTE strategy

Id: UG4f752OXq8

Length: 17min 18sec (1038 seconds)

Published: Thu Oct 26 2023