Zero DTE Traders Make $1,000 While Others Make $350

SPX

The speaker proposes selling a zero DTE iron condor with strikes at 7390 and 7600, collecting a $2.35 credit. The trade is based on the belief that the SPX will not move significantly in the short term, allowing the seller to profit from the premium. The trade is considered a short-term strategy, and the risk is limited to the premium paid. The speaker also notes that extending the expiration to 1 day or 5 days would result in higher premiums, but the zero DTE option is preferred for its faster payoff.

iron condor

Selling a five-day iron condor at the same strikes with the SPX staying near its current price could yield a $10.75 profit if held to expiration. However, if the trader prefers to take profits earlier, selling the same condor and rolling it down to one-day expirations could generate a $350 profit over four days. This strategy is more profitable than holding the five-day condor to expiration, but it carries higher risk due to the potential for large intraday losses in zero DTE options.

Zero DTE SPX Options Capture Short-Term Volatility

Zero DTE SPX options are preferred due to their ability to capture the SPX's short-term price volatility. The speaker explains that the SPX typically has smaller price changes in 1-day periods compared to longer timeframes like 5 days. This implies that zero DTE options can offer more immediate returns due to the higher probability of price movement in longer timeframes, even though the time to expiration is zero.

Profitability of Zero DTE Options

Selling zero DTE options can generate higher profits compared to longer-dated iron condors, as demonstrated by the potential $1,000 profit from daily zero DTE sales versus $350 from a five-day condor. The speed of profit accumulation in zero DTE options makes them attractive, though they carry higher risk due to the potential for large intraday losses.

If I sell an iron condor in zero DTEs and collect a certain amount of credit, if I use the same strikes in a 1-day or 2-day expiration, I'll collect more credit. If I go out to 5 days, the credit is bigger still. Yes, of course it is.

The speaker explains that as the time to expiration increases, the premium collected for an iron condor also increases. This is because the market accounts for the higher probability of price changes in longer timeframes, leading to higher option prices. The speaker notes that this is a well-known fact and not surprising.

TakeawayThe premium collected for an iron condor increases with the time to expiration due to higher volatility expectations in longer timeframes.

Is it better to sell zero DTE options or longer-dated iron condors?

Selling zero DTE options can generate higher profits due to the speed of profit accumulation, but they carry higher risk. Longer-dated iron condors offer lower risk but slower profit generation.

TakeawayZero DTE options are more profitable in stable markets but require more frequent management and carry higher risk.

Can you say, 'Well, I don't like zero DTEs.'

The speaker acknowledges that individuals can express a preference against zero DTE (Days to Expiration) options due to perceived high risk. This is framed as a personal choice rather than a recommendation.

TakeawayIndividuals may have personal preferences regarding zero DTE options due to risk considerations.