0DT Options: Thin Line Between Gambling & Trading
41sHigh stakes and risk of loss immediately grab traders' attention, especially with the popularity of 0DT options.
▶ Play ClipAI Summary
The video provides a comprehensive guide to trading 0DT (zero days to expiration) options, focusing on strike selection, setup identification, and position sizing. The creator emphasizes the importance of explosive moves, at-the-money strikes, and risk management through position size rather than stop losses alone. A real trade example on Meta is used to illustrate the principles.
Chapters
[00:00]
0DT Popularity and Risks
0DT options are increasingly popular, with three days of 0DT for individual names (Monday, Wednesday, Friday). Traders are drawn by potential returns, but there's a thin line between gambling and real trading. Poor strike selection can lead to 40-50% losses.
[01:07]
Explosive Moves Required
The most important factor for 0DT trades is the type of trade: explosive moves. These are characterized by large candle bodies and high volume. Momentum and reversals with volume on 5-minute charts yield good returns.
[01:26]
Stock Selection
Stock selection must align with the expiration type. For 0DT, choose volatile, aggressively moving stocks. Avoid slow movers because IV and theta will erode premium value.
[01:44]
Strike Selection: At-the-Money
Strikes should be close to at-the-money. Far out-of-the-money contracts can move aggressively but lose value quickly if the move stalls. At-the-money contracts hold value better, allowing you to hold winning trades longer and milk more profit.
[03:22]
Position Sizing as Risk Management
Position size is the primary risk management tool, not stop loss. 0DT premiums move fast, so mechanical stops don't work well. Size down to allow for normal premium fluctuations (10-15%) without hitting your stop.
[04:56]
Rules for 0DT Position Sizing
If taking 0DT at the open, size down. If the market lacks follow-through, size down. If already green on the day, keep normal size. This provides a cushion and prevents tilt.
[06:13]
Meta Trade Example
Trade on Meta on September 9th. Strike: $652.50. Entry at $2.97 when price broke $650. Chose next at-the-money strike to avoid intrinsic value loss. Scaled out at $3.60, $4, $5.30, $6.25 within one 5-minute candle. Position size reduced from $70K to ~$50K. Net return: 64%.
[07:41]
Early Entry Rationale
Entering early avoids inflated premiums from market orders at breakout. If the trade fails, losses are smaller than buying at the top. Order flow and level 2 data confirm buyer/seller strength.
[09:45]
Scaling Out Benefits
Scaling out locks in profits and provides cushion if the trade reverses. This is especially important for 0DT because reversals can be aggressive after momentum breakouts.
[10:22]
Final Advice
Follow all rules for higher chance of returns. Risk management is position size, not stop loss. Size down if not comfortable with 30% loss on a $10,000 position. Opening range breakouts with volume and aggressiveness pay best due to momentum and FOMO.
Successful 0DT trading hinges on selecting explosive, volatile stocks, using at-the-money strikes, and managing risk primarily through position sizing. Scaling out profits and entering early on breakouts can significantly enhance returns while mitigating losses.
Tutorial Checklist
4
03:22
Manage risk via position size: size down to allow for 10-15% premium fluctuations without hitting stop.
5
04:56
Apply sizing rules: size down on first trade or when market lacks follow-through; keep normal size when green.
6
07:41
Consider early entries before breakout to avoid inflated premiums; use order flow and level 2 for confirmation.
💡 Key Takeaways
⚖️
Explosive Moves are Key
Defines the core setup requirement for 0DT trading, emphasizing volume and candle size.
01:07
💡
At-the-Money Strikes Hold Value
Explains a critical difference in premium behavior that affects trade management.
01:44
⚖️
Position Size is Risk Management
Challenges the common belief that stop losses are the primary risk tool, offering a more effective approach.
03:22
🔧
Real Trade Example on Meta
Provides a concrete, actionable example of applying the principles with a 64% return.
06:13
🔧
Scaling Out Provides Cushion
Highlights a practical profit-taking strategy that reduces risk in volatile 0DT trades.
09:45Full Transcript
[00:00] 0DT is getting very popular now because you have three days of 0DT in a week in some names now. Prior to that previous year, we don't really have that. We just had SPX, SPY, QQQ names like this that have 0DT every single day.
[00:14] And normal 0DT for individual names was on Fridays. Now, you have for individual names, you have three days, Monday, Wednesday, and Friday for 0DT in some names. And I see a lot of traders jumping into these ZerdyT trading because they see the potential
[00:29] of returns that you can make. But there's a very small thin line between you gambling and actually taking real trades on ZerdyT because if your strike selection is off, if you don't know what you're looking
[00:41] for, you can easily lose 40, 50% sometimes on these trades. So in today's video, I'm going to break down the strike selection, what type of setups you should be looking for. And lastly, I'll show you guys a trade that I took that was dirty tea.
[00:54] And I'll show you guys how much we made in a very short period of time. And this is where dirty tea really shines. The main important thing when you're taking dirty teas is going to be the type of trade you take. So it has to be explosive moves.
[01:07] So explosive moves look like a very large body of candles and volume behind those candles. Obviously, right, when you have a large move, there should be volume supporting that move. So momentum, even reversals, if they have a lot of volume and very large bodies of candles on five minutes, that will yield a very good return on ZerdyT.
[01:26] So your stock selection really has to align with the type of expiration you're trading. So with ZerdyT, we want stocks that are volatile, that move very aggressively. We don't want to pick stocks that take forever to move because that is where the premiums are going to lose value, especially IV and theta is going to start impacting them.
[01:44] So you don't want to really go for after those names. your stock selection has to be very important. Second, which is obvious, the strike selection. Once you have your ZERTY team, you want to be close to at the money. Now, there are a bunch of strategies out there that will push you to go with far out of the money contracts, which
[02:00] do have their benefits because when you pick a strike that is very far away and the move is very, very aggressive, then those percentage wise are going to move slightly better than at the money. But the difference between selecting those far out of the money versus at the money is going to be
[02:15] Once that move does happen, that aggressive move, the out-of-the-money contracts, yes, they're going to move very aggressively. So that's where you want to take some of the profits off. But if the move doesn't continue, those far out-of-the-money contracts are going to start
[02:27] to lose value because they're not in the money. This is where at-the-money is going to shine, under or below. Because once the stock price is in the money, if it calls or puts, that's where those teams start to hold value slightly better than for the out-of-the-money contracts.
[02:42] They're not going to lose value as quick as those out-of-the-money contracts. So how does that benefit us now you can hold that winning trade longer you can milk out more profit out of that same setup Versus out of the money contracts you're going to see those premiums
[02:56] Fluctuate very aggressively like they could be up 50 and a small pullback now They only up 30 a pullback again You might be break even versus at the money if now they in the money right now those premiums are going to be only fluctuating maybe 10 to 15
[03:10] which is much safer in terms of your returns when you're comparing out of the money versus at the money contract. And they hold value way, way better. And one last thing before we jump into the trade recap. This is very important.
[03:22] Your position size is going to be the source of risk management. Most traders think that risk management comes only from the stop loss. That's not the case. Because with 0DT premiums, the premiums move very fast, very quickly.
[03:34] So when you're wrong, you can lose. So let's just take an example. Let's say your usual stop loss on a stock chart is around 10%. And on Monday, stock needs to pull back against your favor quite a bit before that 10% actually gets triggered.
[03:49] Now, fast forward to Friday or any of the 0DT days, that same 10% is going to get triggered way fast. right meaning if you need one full five minute candle to pull against you here it might just need one one minute candle to pull against you for you to be down already 15 so those mechanical
[04:06] stops where you're all right i'm only gonna lose 10 they're not gonna work well on dirty t on dirty t you need to be a little bit flexible you need to let the price action breathe a little bit maybe a little pullback where the premiums have room to go down 10 15 it's very normal on dirty
[04:22] And the only way around that without you losing a whole chunk of your profit is managing your position size, right? So if your usual position size is like $1,000, you want to size slightly down to where if you're losing 30% on that smaller position size, it equals to you losing 10 or 15% on your normal position size.
[04:42] So what that's going to happen is dollar value wise, you're still going to lose the same amount you would on your normal position size. But percentage wise, it's going to be slightly larger, right? So going from 1015 to 25, 30% loss.
[04:56] And that's something I do whenever I'm taking 0DT. The rules I have around 0DT is if I'm going to take 0DT at the open, I'm sizing down. I try not to take them, but when I do take them as my first trade, I 100% size down.
[05:09] If I see that the market is not giving any follow-throughs, but there's a setup on ZerdyT that looks very good, I size down again. However, if let's say I've taken two trades, normal size, everything is working out fine,
[05:22] market is great, then in the third trade that I'm about to take a ZerdyT, I go with normal size. The reason for that is because now I have cushion that I can afford to lose that will not impact my overall day in terms of me being red and really going into a full tilt.
[05:37] So if I'm green on the day, I'm going to keep the position size the same. If it's your first trade, I would advise size down if you're going to do 0DT very, very aggressively. Because even if the trade works out with a smaller position size, you can manage that trade a little bit better and still get a little bigger profit than you would on a normal position size.
[05:55] And trust me, I've done that multiple times. You just need to change a little bit of your scaling up strategy. And I show you guys that in the coming series of videos But in today video what I want to show you guys now is one of the trades By putting all of this into account to show you guys exactly where I took the trade why I took the trade
[06:13] So the trade we're going to talk about is Meta. You guys can see this was on September 9th. The expiration is also September 9th. The strike I went with was $6.52.50. Now, the reason I went with $6.52.50 was I got in the moment this thing broke $6.50.
[06:28] All right, so the moment it broke $6.50, at that point, the next at-the-money contract was $6.50 to $6.50. I couldn't do $6.50 because this was already in the money. And the problem with that, if I had done $6.50, let's just say this had failed and it kind of gave up $6.50,
[06:43] there's something called intrinsic value that starts getting added onto your premium. So if the stock goes against you right away while it's in the money and that's where you buy, now you lose that intrinsic value right away. So your loss kind of becomes a little more aggressive than normal, right?
[06:57] So to avoid that, I went with the next at-the-money contract, which is $6.52.50. Now, this was a 15-minute range setup, right? So you can see the high. You have the 1, 2, 3, 5-minute candles. The high of that is around $6.51, and the low of this is $6.38 and change.
[07:13] Now, if you've watched previous videos, you'll know that I like to take early entries, and I look for certain patterns in those early entries because they give me the confirmation that, hey, this has a very high chance of breaking out. Keep in mind, this is not a signal or a confirmation that it is going to break up.
[07:28] This is where order flow, level two, time and sales, it shows you if there's interested buyers or sellers around that area, and if buyers or sellers, depending on which direction you're looking at that trade, are strong enough to break through that level, right?
[07:41] So the reason I jumped into this was, one, we had a very aggressive buildup of volume, so you guys can see meeting into that range, right? We're still very far away from the range when I got in. But, oh, another reason why I jump in a little bit early is if you jump in after the breakout does happen, with options, what happens is IV kind of fluctuates a little bit.
[08:00] There's a little bit of supply and demand going on where people are hitting market orders. And that inflates the premiums just a tad bit, right? So where you're usually expected to lose only 15%, 20%, when you buy at the very top with options and it pulls against you, you can lose way more than that 15%, 20%.
[08:16] It could be extra 5% to 10% that you can take a hit because now you just overpaid for the premium. So typically, I like to get in a little bit early because when I get in a little bit early, if let's just say it fails and I see that the buyers are not interested and sellers are way more stronger,
[08:31] I can cut that trade out and now take a massive hit versus if I'm jumping in right at the top and it fails and premiums pull back, I'm going to lose a whole lot more than my normal 20% or 25%.
[08:43] So that was the reason for the trade and you guys can see here we got in around $2.97. The moment this thing broke out, I scaled some out, right? And you can see $3.60, $4, $5.30, $6.25 all within the single five-minute candle.
[08:57] So basically from here, from $3, the premiums went almost 100% within three to four minutes, right? And this is the power of the options. You don need to hold these trades a very long period of time You don need to be in front of your screen for a very long period of time because percentage they move very aggressively and very quickly
[09:17] So my position size on this, my normal position size, by the way, has been 70K. I size down to this to around 50,000. Now, I don't get exact number down because I don't sit there trying to do the math of how much it will be equaling to 50,000 or 70,000.
[09:30] Sometimes it's 48,000. Sometimes it's 52,000. With 70K, sometimes it's 68,000, sometimes it's 72,000, right? As long as you're staying within that range, it's fine. So it was 170 contract. The net return was 64% because of the scaling out.
[09:45] I think scaling out is one of the best things you can do, especially for Zerdy T. Because once the planes move, you scale some off, you take some process off the table. Even if it fails down the line very aggressively, which we've been seeing that a lot of plays
[09:57] after a momentum breakout, some news comes out or something happens in the market, the reversals are very aggressive. So scaling out gives you cushion if you're wrong. until that cushion gets taken away. So you're still green on that particular trade.
[10:10] So I increased my stop. I'm not going to jump into the stops in this particular trade. But just to kind of show you guys, you just need a single aggressive candle with volume. And that's where those option contracts are just going to blow up, right? So it's zero DT.
[10:22] If you follow all the rules, everything that I mentioned in this video, you will have a higher chance of making bigger returns. But if you skip something, like for example, if you don't manage your position size, right? There are times where you're going to be wrong in the market.
[10:34] And your risk management comes first, and that's going to be your position size. It's not going to be your stop loss. A stop loss just tells you how much you're going to lose on that trade based on your position size. So if you're not okay with losing 30% of $10,000 position and size down to 5,000,
[10:51] because that 5,000 position size losing 30% is going to be 15% on the $10,000 position. So this way, you can mitigate your risk and you're staying in control of your trade because most traders lose the control of trade over how much they're losing, right?
[11:07] When they see that they've lost 30% like this, that causes them to kind of now go on a tilt. So if you don't want to go through that, manage your position size, have a stop loss before you jump in, and know what type of trades you're going to take or what type of setup.
[11:20] Opening range breakouts, when there's volume, when there's aggressiveness, they pay the best because there's momentum. There's FOMO from other people. This candle here, all this candle here, the volume majority of it is from people watching this.
[11:32] Oh, it failed earlier. It failed earlier. It failed here again. It finally broke out. They can just write that. For all my kicks in, people don't go for limit orders. They're going to go for market orders because the pre-orders are moving so fast. And guess what? If you're already in, now you're selling them your position.
[11:47] You're jumping out, taking some profits off the table. Now, I have made multiple videos on early entries, what to look for. So you guys can go to my channel and watch those videos. I'd love to hear some feedback on what other videos I should do.
[11:59] I've been kind of just focused on trying to educate people on 0DT because I see a lot of new traders jumping into this and small accounts. So most of the videos have been focused around that. So comment below and I'll see you guys in the next video.