Zero DTE Workaround for Under $25K. Tom Preston Has the Exact ES Setup.

SPX

The strategy involves selling iron condors or put spreads daily on zero DTE SPX options, with the goal of closing trades early at a 50% profit level. This approach allows traders to manage risk and lock in profits within the same trading day, avoiding exposure to further market movements. The strategy is effective in volatile markets where the SPX options deliver decent volatility, enabling traders to collect credits for their positions.

SPX

The SPX iron condor strategy involves selling put and call options with a $10 width, resulting in a $1.35 credit. The max profit is $135, while the max loss is $870. This strategy is suitable for traders who can manage the risk and are aware of the day trading rules. The SPX options are treated as equity options, so traders must be cautious of pattern day trading violations.

Zero DTE SPX Options Trading Strategy

Trading zero DTE SPX options involves selling strategies like iron condors or put spreads daily, with the goal of closing trades early to lock in profits. The strategy relies on closing trades at a 50% profit level, typically within the same trading day, to avoid exposure to further risk. This approach allows traders to manage their positions actively and efficiently within the short time frame of the options' expiration.

Equity Options vs. Futures Options in Day Trading

Equity options, such as SPX options, are subject to pattern day trading rules, which can impose restrictions on traders with less than $25,000 in equity. In contrast, futures options, like ES futures, are regulated under the CFTC and do not fall under these day trading rules, allowing for more flexibility in trading strategies. This distinction is crucial for traders seeking to avoid penalties while executing day trades.

Defined Risk Trades for Risk Management

The speaker emphasizes the importance of using defined risk trades to manage risk effectively. This approach allows traders to set clear boundaries on potential losses, ensuring they are comfortable with the risk they are taking. The method is applicable across various instruments such as SPX, ES, and stocks, and it is particularly useful for traders looking to maintain discipline and avoid excessive exposure.

What is pattern day trading and how does it affect traders?

Pattern day trading is a rule created by FINRA in 2001 to restrict traders from executing more than three day trades in a single trading day without a minimum account balance of $25,000. If a trader exceeds this limit, their account may be restricted for 90 days. The rule applies to traders who engage in multiple day trades, where the number of securities bought and sold on the same day exceeds the limit.

TakeawayTraders must be aware of the pattern day trading rule and ensure their account balance meets the minimum requirement to avoid restrictions.

Are SPX options subject to pattern day trading rules?

Yes, SPX options are considered equity options for pattern day trading purposes, meaning traders with less than $25,000 in equity may face restrictions.

TakeawayTraders should be aware that SPX options are subject to pattern day trading rules, which can affect their ability to execute multiple day trades.

What are the pros and cons of using SPX versus ES options?

The speaker discusses that SPX options have slightly lower commissions and fees compared to ES options. However, ES options can be used alongside equities in a futures account, and there are considerations around pattern day trading rules. The speaker also mentions that using ES options with knowledge of their equivalency to SPX options can help work around pattern day trading rules if the account has a net liquid less than $25,000.

TakeawaySPX options may have lower fees, but ES options can be used in a futures account with certain conditions.