Daily Expirations: The Allure and Risks of 0DTE Options

by | Oct 2, 2023

Stop what you’re doing — you need to hear this…

The options market is currently experiencing a major sea change.

And if you aren’t aware of what’s happening, you could get blindsided by these rule shifts. Or worse, you could make an uninformed trade and take a big loss.

Here’s what I’m getting at…

On June 21, 2021, the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) began offering 0DTE options on a daily basis

Prior to that date, the SPY only had Monday, Wednesday, and Friday expirations…

But after that change, daily expirations were available, providing traders with more flexibility for short-term trading strategies … as well as an easier way to lose money quickly.

And now, we’re starting to see the effects of this rule change…

Last week, it was revealed that 0DTE (zero days to expiration) option contracts now account for 50% of all S&P 500 options volume.

A lot of traders are tempted to dabble in these ultra-risky contracts. But you need to understand exactly how 0DTE contracts work to make an informed decision about trading them.

With that in mind, keep reading to see everything you need to know about 0DTE options…

Why Some Traders Gravitate to 0DTE Options

First, let’s break down some of the main reasons why so many traders are scalping 0DTE options right now…

Elevated Liquidity and Trading Volume

0DTE options have been seeing high trading volumes due to their transient nature and more affordable price point.

The influx of traders aiming to capitalize on these short-term contracts has resulted in a bustling market, particularly on days with significant news events or anticipated market moves.

(Think about how much options volume you see on 0DTE contracts when there’s an earnings report or PR release for the underlying stock.)

For option traders, increased liquidity generally means more counterparties are available, allowing for easier entry and exit from positions.

Short-Term Speculation = Increased Volatility

These options, due to their fleeting existence, are a magnet for speculative trading.

Traders often look for quick profits based on intraday price movements, potentially leading to exaggerated short-term price fluctuations.

For stocks or indices with a large volume of 0DTE options trading, this could result in heightened intraday volatility.

Flexibility for Strategies

For advanced traders, 0DTE options provide a new tool to implement specific intraday strategies.

These might include tactics like delta hedging or playing off of breaking news events.

For example, market makers may use high-volatility 0DTE puts to offset a larger, longer-dated batch of call options that are losing value. 

Plus, for those well-versed in volatility trading, these options can be employed to capitalize on sudden spikes or drops in implied volatility (IV).

That said, I doubt any of these strategies apply to you. 

But my next point might…

Lower Premiums

With virtually no time value, the premiums for these options are generally lower than their longer-dated counterparts.

In my opinion, this is what truly attracts small-account retail traders who can’t afford to buy more expensive, less risky contracts.

I can’t tell you how many times I’ve seen some clueless newbie post about their 0DTE SPY call ‘YOLO’ on social media…

But how many of these trades end in exponential gains? Almost zero.

While low premiums can make 0DTE contracts seem attractive for purchase, the associated risks should be thoroughly understood.

And speaking of the risks of 0DTE options….

Why You MUST Approach 0DTE with Caution

From where I’m sitting, there are more reasons to avoid 0DTE contracts than to buy them. 

Here are some of the negative aspects of trading 0DTE options:

Rapid Time Decay

The concept of theta, or time decay, is particularly relevant for 0DTE options. 

These contracts are like the goldfish of the options market — they have a very short lifespan. 

Every minute counts. Heck, every second counts.

Sellers benefit from this rapid decay as the option’s value diminishes rapidly. 

Are you familiar with this trading “loophole?”

Are you familiar with the “loophole” that helps small accounts grow exponentially?

No, it doesn’t have anything to do with penny stocks or crypto…

And this strategy works regardless of whether the markets are up OR down…

This little-known options “loophole” is something you can use to grow your trading account right now…

However, option buyers (like you and me) face an uphill battle: we need a strong move in the underlying price … and need it fast.

If the underlying stock doesn’t trade in the right direction, you’ll get smoked and the market makers will get paid. 

High Gamma Risk

Gamma measures the rate of change in an option’s delta for a one-unit change in the price of the underlying.

And with 0DTE options, gamma can be significantly higher than any other contract. 

If all that sounds confusing, allow me to simplify…

This means that even small price changes in the underlying stock can lead to substantial changes in the option’s value, making these options exceptionally sensitive.

This is a double-edged sword…

If you’re right about the direction, your the value of your contracts will increase significantly … and quickly.

But if you’re wrong about the direction, the opposite could happen — your contracts could lose 50-70% of their value in minutes.

If that happens, how do you recover?

Limited Time for Recovery

If a trader’s 0DTE prediction goes awry, there’s virtually no opportunity for the position to recover before the option expires.

If the underlying goes against you, and your contracts shed 50%+, it’s gonna be very hard for you to significantly profit on those contracts … even if the underlying ends up blasting beyond your strike price. 

This contrasts with longer-dated options, where you have more wiggle room for error.

The current market swings might be offset by future movements, but you won’t be able to realize this possibility if your options expire the day before the stock heads back in your direction. 

The Temptation to Overtrade

The allure of potentially quick profits and the lower cost of entry can lead traders to trade 0DTE options more than they should.

This can result in high transaction costs and also push traders towards making hurried, less-considered decisions.

While 0DTE options present an intriguing opportunity for some strategies, they’re fraught with risks that can result in significant losses in a very short time frame. 

Especially for those unfamiliar with the intricacies of options trading … I advise trading 0DTE contracts with extreme caution.

Why I Don’t Trade 0DTE Often

If you follow my trades (but hopefully don’t chase them), you’ll notice that I very rarely trade 0DTE contracts…

For one, I’m usually trading options on individual stocks as opposed to the SPY itself.

But if I do trade the SPY, I usually buy contracts about a week out, even if I think the move is gonna happen immediately.

Why do I do this?

Because if I’m right, the contracts will still pay out handsomely. 

But if my timing is slightly off, the weeklies lose much less premium than the dailies. I don’t want my contracts to shed 50% of their value in 20 minutes.

In other words, for me, the risk/reward is good enough on contracts with a few days left. 

I usually see no reason to take the outsized risk required for trading 0DTE contracts.

But before we wrap up, I have a question for you:

Are You Ready To Take The Next Step?

Here’s the truth … I wouldn’t be a multi-millionaire if I hadn’t joined Tim Sykes’ Trading Challenge so many years ago.

And I want you armed with all of the tools necessary for success in the stock market.

So, if you’re passionate and dedicated, ready to take on anything the market throws at you, then I’ve got something for you…

My mentor, Tim Sykes, has helped traders learn to succeed for years. More than 30 of them (including me) are now millionaires.

Are you ready to take your trading game to the next level? Do you have what it takes to face the Trading Challenge?

Let’s find out…


I’m excited to see you there!

Meet Mark:

Mark Croock is a former accountant who after studying under Millionaire Trader Tim Sykes turned his small account into $4.11 million in trading profits by applying Tim’s strategies to options trading.

He started Evolved Trader to pay it forward and help other traders learn how to leverage options


Recent Tweets:

Recent Articles: