Right now, the biggest craze in the world of Options is trading 0 DTE Options.

That’s because many people are lured by the idea that they can quickly make money with them.

In general, when trading Options, it usually takes a number of weeks to work your trade and see results.

But with 0 DTE Options, you can put on a trade in the morning, and you’d be able to see results by the end of the trading day.

And you can place multiple trades so you can increase your occurrences in a shorter span of time.

This way if you do have a profitable strategy, the high frequency of occurrences can make you more money faster.

But can you really be profitable trading 0 DTE Options?

## The Edge In Trading Options

For the longest time, I have been very hesitant and reluctant to trade 0 DTE Options.

And that’s mainly because of the edge, or rather, the lack of an edge.

So when we trade Options, we need to first understand what our edge is.

If there’s no edge, then there’s no reason for us to trade Options in the first place.

So what’s our edge?

Our edge comes from selling Options.

And this edge is the fact that the Expected Move has historically overstated the actual Realized Move.

The table above shows a study done by the folks at TastyTrade.

This study examines the difference between the Expected Move and the Realized Move.

The Expected Move is the range at which the market is expected to be in by a certain date.

There are two ways to calculate the Expected Move.

The first is to use the Expected Move Formula which is this:

Stock Price x IV x Square Root (No. of Days / 365)

Now, there’s no need to calculate this yourself because it’s already given in the Options Chain.

The “+/-” number at the right-hand side of the Options Chain is the Expected Move range.

So if the current price of the underlying stock/ETF is $100 and the Expected Move is “+/- 10”, that means the Expected Move is from $90 to $100.

The second way to calculate the Expected Move is by using the 16 delta Options, which take into account the skew of the underlying stock/ETF.

Based on the study, if you were to trade the Expected Move (using a Strangle or an Iron Condor), you can see that the theoretical win rate should be 68%.

However, the actual win rate is higher from 71% to 85%.

This is our edge as Options sellers.

That’s because we win more than we theoretically should, and we’re selling premiums at a higher price than we actually should.

The above is another study that shows that the Expected Move is greater than the Realized Move regardless if the Implied Volatility (IV) is high or low.

As you can see, this edge we have is prevalent across all IV conditions.

In the chart above, you can visually see the difference between the Expected Move and the Realized Move.

In my own trades, I experience the same results as well when I trade the Expected Move.

Here are the past 100 trades I did trading the Strangle:

These Strangle trades are based on the Expected Move so the theoretical win rate should be 68%.

However, my win rate is 77%.

And that’s why I’m able to be consistently profitable when trading the Strangle.

So now that I’ve presented you this data and information, you might be led to believe that there would also be an edge trading the Expected Move using the 0 DTE Options, right?

You might even already be thinking to trade the Strangle or the Iron Condor using 0 DTE Options.

However, that might not be the case.

## The Problem With 0 DTE Options

There’s one big problem with trading 0 DTE Options.

The table above compares the Expected Move against the Realized Move based on the different DTE.

This study analyzed data since 1993 and has almost two decades of data points.

So this is a very significant data set.

From the table, you can see that from 45 days to 90 days, the Expected Move is bigger than the Realized Move.

And if you noticed, the difference between the Expected Move and the Realized Move is the most pronounced.

That means that the more time there is in the trade, the greater the edge you have.

But we generally want to stick to around 40 DTE to 60 DTE in our trade because that’s when we have optimal Theta decay.

However, if you take a look at the 30 days and below data, you will notice that the Expected Move is actually smaller than the Realized Move.

This means that if you trade 30 DTE and lesser, there is no edge if you trade the Expected Move.

You will end up winning *lesser* than the theoretical win rate of 68%.

This is a negative edge.

Hence, I was very skeptical about trading 0 DTE Options.

Now, that is not to say that you can’t be profitable trading them.

If you’re good at technical analysis and picking directions, then it’s possible for you to overcome this negative edge.

But that by itself is already a very difficult feat.

So while I’m not doubting the fact that some people can be profitable trading 0 DTE Options, it would be an uphill battle.

With that said, I decided to trade 0 DTE Options as a test to see if it’s really possible to be profitable in the long run.

## Picking A 0 DTE Options Strategy

So the next step would be to pick a 0 DTE Options strategy.

When I did my research on this, I realized that there were many different ways that people are trading it.

Here are some of the different strategies used:

- Long Puts/Calls
- Naked Puts/Calls
- Butterflies / Iron Fly
- Credit Spreads
- Iron Condor

Some of these strategies are inherently risky and some have too low a probability of success for them to actually be profitable.

So, I’ve come up with a set of criteria to avoid huge risks:

- Avoid selling naked Options because Gamma is at its highest at 0 DTE. Any move will easily wipe out any Theta gain.
- A strategy that was simple to execute with zero management of trades.
- Put on the trade once and leave it till expiration – “Set & Forget” strategy. That’s because I don’t trade the market from open to close. I usually trade just the first few hours so I wanted a strategy that requires no managing of trades.
- Relatively high Probability of Profit without being directional. Predicting which way the market will go is the hardest way to be profitable in trading.

With these criteria in mind, the strategy I chose is to trade the Expected Move using the Iron Condor on SPX.

The reason for trading on the SPX is that it’s a cash-settled Index which means any In-the-Money (ITM) Options would be settled in cash instead of being assigned shares/ETFs.

The last thing you want is to open your trading platform the next day and find that you’re Long/Short 100 shares and you’re on a margin call.

## Trading The 0 DTE Iron Condor on SPX

Here are the trade mechanics for this live trading test:

- Put on the Iron Condor in the first few hours of the market opening.
- 15 – 25 Deltas for the short strikes (theoretical win rate approx. 60% – 65%).
- $5 Width (Max loss = $500 – Credit received).
- Hold till expiration without managing the trade.

Since there had only been 15 trading days since I put on this test, there’s only a sample size of 15 trades.

Here are the statistics so far:

- Win Rate = 73.33%
- Loss Rate = 26.67%
- Average Win = $146.68
- Average Loss = -$344.68

Expectancy = (73.33% x $146.68) – (26.67% x $344.68) = **$15.63**

As of these 15 trades, the expectancy is positive.

However, that doesn’t necessarily mean that this is a profitable trading strategy.

In order to have a more accurate win rate, we need at least a sample size of 100 trades.

But as of now, the test results seem not too bad.

However, a single loss can wipe out these gains.

If the win rate can still maintain as it is over 100 trades or more, then this strategy could be profitable.

As of now, it still remains to be seen.

## Should You Trade 0 DTE Options?

As we’ve already seen in the research done by the folks at TastyTrade, there is no edge if you trade the Expected Move using the 0 DTE Options.

If you’re planning to trade the Strangle or Iron Condor, it would still be better to use the 40 DTE – 60 DTE Options.

That’s when the Expected Move is clearly greater than the Realized Move.

However, if you’re good at reading charts, technical analysis, or have a strong directional bias, then you could still trade the 0 DTE Options to play out your bias.

But you may be better off simply trading the underlying stock/ETF outright without using Options.

If you wish to take advantage of the edge from selling Options, then it would be better to avoid 0 DTE Options and stick with 40 DTE – 60 DTE Options.

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