July 23, 2024
Is Zero Days to Expiration (0DTE) Ruining Trading? Here’s How to Defend Your Profits.

Is Zero Days to Expiration (0DTE) Ruining Trading? Here’s How to Defend Your Profits.

In recent years, day trading has become increasingly popular.


It could be that the advances in trading tech have made it more accessible. For others, it’s the reduced cost of trade transactions. Or maybe people just like the flexibility, like Kenny – he’s liquid and loves it.


But one type of trade that these new “day traders” have been using is wreaking havoc on the market…


It’s called Zero Days to Expiration (0DTE), and we here at Money Morning Live have been talking about it for a while.


Unfortunately, like every trading style, 0DTE has its fair share of pros and cons. However, from my experience, it has had the most significant negative impact on day-to-day trading that I have ever witnessed.

0DTE options trading is a type of trading strategy that involves buying or selling options contracts that expire on the same day.


This means that the option will expire at the end of the trading day, with no time left for the option to gain or lose value before expiration.


The advantage of 0DTE is that it allows traders to take advantage of short-term market movements and potentially make profits quickly. The trader can close out their position at the end of the day and realize any gains or losses.


Because 0DTE options expire very quickly, they offer reduced exposure to market risk compared to longer-term options contracts. 


You could capture profits without the fear of something going haywire in the market thanks to Jerome Powell’s steak being overcooked or a tweet from fun uncle Elon. 


However, 0DTE options’ short-term nature can work against you as easily as it can for you. 


Additionally, because the option is expiring on the same day, the price of the option can be very volatile, making it difficult to predict the outcome of the trade.


But that brings me to the most important part of all of this: the greater fallout for the rest of the market…


Just take a look at this chart on the S&P 500:

Big bars, little closes, HUGE volume, and all of it a direct result of 0DTE options trading…


And I know what you’re thinking: “But CJ, options price is a result of market price, not the other way around.


You’d be right, to an extent, but back in 1998 when I first jumped into reading charts, there were only about 450 companies that were optionable.


This made it much easier to do studies like I was doing at that time.


The one that sticks out at this moment is when I compared the price movements of optionable stocks to the price movement of non-optionable stocks.


That is when we realized that stocks with a lot of open interest at one strike price would typically see the stock premium bounce around that price, getting tighter and tighter as the expiration date of the option got closer.


This is a phenomenon called pinning.


You can read about pinning right here if this is a new topic for you.


These expirations are every day, which means you’ll see the stock bouncing around like a BB in a boxcar only to finish the day with next-to-no meaningful change from the day prior…


This is a result of the tight time frame. Traders of 0DTE are trading at the money rather than giving the stock some room to run.


This makes swing trading – what you and I do – a bit more difficult, because the stock price isn’t changing all that much on a day-to-day basis and the Theta – when the option loses value as you get closer to expiration – starts to eat away at our premium.


Overall, 0DTE options trading can be a useful tool for experienced traders looking to take advantage of short-term market movements, but it should be approached with caution and deployed only by those who fully understand the risks involved.


I understand the risk fully and am making a conscious decision to stay away from it. I’ve been burned one too many times to switch to a day-trading strategy.




There is one type of trading that has caught my eye lately that a new expert here at Money Morning Live’s been using that seems much more appealing to me and traders like me. 


It’s actually from Mark Sebatians’ mentor, Andrew Giovinazzi.


I wouldn’t describe his track record to be shocking, stomach-dropping, or unrealistic… His gains are intentional, reasonable, and realistic.


We all get caught up in going for the 100%, 200%, or even 300% gain because our egos get in the way from time to time.


But Andrew searches for something steady and reliable to grow his portfolio without the risk that the rest of us face when swinging for the fences.


Now, he’s a new face around here, so many of you’ve likely not been introduced to him yet – and that’s okay!


Because this Wednesday, March 8th at 8PM EST, he’s holding a special session so you all can get to know him a bit better.


But, this isn’t going to be a schmooze session like Kenny holds. He’s going to give you all of the details on the market setup that allows him to sustain an average gain of 8% every 14 days.


He will prove that it works, and explain why his strategy could be the perfect fit for a select few of you.


But listen… Before you sign up, there’s something you need to know.


These aren’t for flash-in-the-pan profits here. These are for people looking for something steady. 


So if you’re only looking to get rich quick, this isn’t the session for you…


But it caught my eye and I’d be remiss if I didn’t share it with you.


You can reserve your seat by clicking right here so I can send you a reminder!


Hopefully, I’ll see you there.


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