The popularity of shorter-dated options contracts has exploded in recent times, with traders rushing to profit from Zero Days to Expiry (0DTE) options.
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What Does 0DTE Mean in Options Trading?
These are contracts with less than a day before expiry, and reportedly, the daily notional value in 0DTE options is now nearly $1 trillion. These contracts could be for indexes, ETFs, or individual stocks. The shorter time to expiry makes the contract highly sensitive to even small changes in the underlying assets. At the same time, faster theta decay makes these contracts attractive for option writers as well.
Why Are 0DTE Options So Popular?
According to SpotGamma, trades in ODTE options make up nearly 44% of the ten-day average daily volume. Last year, this figure stood at only 19%. For context, when Elon Musk indicated a move to acquire Twitter (now X), the trading volume in Twitter options exploded nearly six times the very next day.
Despite some concerns, the trend in ODTE options looks set to continue. Last month, we saw the debut of the Defiance Nasdaq-100 Option Income ETF (QQQY), which is focused on selling one-day options to generate income. Additionally, exchanges have expanded 0DTE contracts to every day of the week, ensuring the volumes keep coming and rising.
Concerns Around 0DTE
While derivatives were initially devised as a mechanism to hedge against market volatility, some quarters of Wall Street believe that extreme market moves could be caused by the sudden intraday volume shifts in options. This, in turn, could lead to major market ripples.
For some, though, trading in these short-lived contracts is a way to ride sharp intraday moves and a path to potential riches. At the end of the day, it’s not all frenzied speculation. Sophisticated market players, including hedge funds and banks, also employ short-dated options to manage risk on a day-to-day basis.
How Do You Profit from 0DTE Options?
One of the most popular ODTE contracts is the SPX (SPX), but optionable stocks with monthly expirations also have 0DTE options once a month. The TipRanks Options Tool can help traders navigate the vast data around options contracts and devise the most profitable strategies.
Additionally, our Unusual Options Activity feature can help you spot activity that may seem out of place and potentially lead to profitable opportunities. To learn how you can uncover a treasure trove of data on options in eCommerce giant Amazon (NASDAQ:AMZN), Click Here.
Finally, it pays to have more than one trick up your sleeve. Check out our technical indicators and options profit calculator feature on your way to profits.
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