0DTE Option strategy run through

I'm temped to deploy an ODTE option strategy in 2023, and why you should consider learning about this strategy too

0DTE (zero days to expiration) options are options that have no remaining time until expiration. In other words, they are options that are set to expire on the current day.

There are several strategies that can be used with 0DTE options, including the following:

1. Closing a position: If you have an existing long or short position in options, you can use 0DTE options to close out the position by buying or selling options to offset your original trade. This can be useful if you want to minimize potential losses or lock in profits.

2. Rolling a position: If you have an existing long or short position in options that have some time remaining until expiration, you can use 0DTE options to "roll" the position forward to a new expiration date. This can be useful if you want to extend the time frame of the trade or if you want to adjust the strike price of the options.

3. Earnings trades: Some traders use 0DTE options to make bets on the direction of a stock's price around earnings announcements. The idea is to buy or sell options that will expire on the same day as the earnings announcement, in the hopes of making a profit based on the stock's price movement after the announcement.

4. Gamma scalping: Gamma scalping is a strategy that involves buying and selling options with very short expiration dates (such as 0DTE options) in an attempt to profit from small price movements in the underlying stock. This strategy is typically used by professional traders and requires a high level of skill and experience.

Here are some examples of the four strategies I mentioned above using 0DTE options:

1. Closing a position:

Example: You originally bought a call option on XYZ stock with a strike price of $50 and a expiration date of 1 month from now. The stock is currently trading at $55, and you decide that you want to close out your position to lock in your profits. You can do this by selling a 0DTE call option with the same strike price of $50. This will offset your original trade and allow you to exit the position.

2. Rolling a position:

Example: You originally bought a put option on XYZ stock with a strike price of $50 and a expiration date of 1 month from now. The stock is currently trading at $45, and you decide that you want to roll your position forward to a new expiration date. You can do this by selling your existing put option and using the proceeds to buy a 0DTE put option with the same strike price of $50 and a new expiration date that is further in the future. This will allow you to keep your position open and adjust the expiration date to suit your needs.

3. Earnings trades:

Example: XYZ stock is set to announce earnings in 2 days. You expect the stock to go up after the announcement, so you buy a 0DTE call option with a strike price of $50. If the stock goes up after the earnings announcement, the value of your call option will increase and you will be able to sell it for a profit. If the stock goes down, the value of your call option will decrease and you will likely incur a loss.

4. Gamma scalping:

Example: You are an experienced trader and you want to use the gamma scalping strategy to profit from small price movements in XYZ stock. You buy a 0DTE call option with a strike price of $50 and simultaneously sell a 0DTE put option with the same strike price. You are hoping to profit from the difference in the premiums of the two options, and you will also benefit if the stock moves in the direction that you anticipated. This strategy can be risky and requires a high level of skill and experience.

There are many strategies that can be considered high risk but also have the potential for high rewards. Here are a few examples:

(As noted this article is for educational purposes only to inform readers about the strategy and for them to be equipped to investigate this strategy further)

To continue reading please consider subscribing and support our content