Live 0DTE Butterfly on XSP — Step-by-Step Guide & Transcript

[00:00] The XSP does not get the credit it deserves. It is one-tenth the size of the SPX, and just like the SPY, it is a derivative, or I like to consider it a derivative, of the S&P 500. That means if the

[00:13] S&P 500 is up, all of these instruments are going to be up. With the XSP being one-tenth the size, it means it inherently has much less risk. If the SPX is at, in this live case here, 7,423,

[00:29] you can just pay attention to the first three numbers. So 742, that means the XSP is going to be at 742. It is easy to do the math. That means if you trade options on the XSP,

[00:42] you can analyze the SPY without also having to analyze the XSP. You can just trade the options. In other words, let's just say I think the market was going to go up and I wanted to buy a call.

[00:55] I don't need to look at the XSP charts. Let's just say I'm targeting 7,500. That means I can just buy the 750 call on the XSP. It is rare for me to actually even have the charts up for the XSP.

[01:10] I only have it up for purposes of this video. But as you guys can see or as you know on this YouTube channel, I love trading the XSP, especially with 0 DTE and 1 DTE expirations.

[01:23] This is a 0 DTE position I have running here today. simple analysis off of the gamma exposure for the zero DTE on the SPX. I noticed we were in negative gamma territory. This is the absolute guess here, which was 7,450. This was 15 minutes

[01:38] into the market opens. This data is from Quantity Trading App. It was sent to the Quantity Trading App Discord channel right here, and it is published in these periodic increments, as well as the zero DTE SPX trade engine. Now I can use the data and the information from the SPX, but I can use this

[01:56] information to execute a trade on the XSP and this is that spread here. This is the same spread in options, right? This is just me sharing what the P&L looked like a little bit earlier here today,

[02:08] but as you guys can see the trade is doing well I have a couple lots Now I planning on letting this cash settle That is a huge bonus of XSP options just like the SPX It means we can hold it into the close and let it

[02:21] cash settle. Wherever the market closes here today that will be my P&L. If the market were to go up a little over 0.2% or so that's going to put me right at the peak which is going to be a little bit over $550 or so of max profit. You guys can see I'm currently at $250. The total max loss in

[02:39] position here is just under $400. So $396 with just two lots. Not a lot of risk. This is extremely small size. I think for most traders, if you're trading on a 5k account or 10k account, I think

[02:53] having a position that you're using less than $500 or in this case, less than $400 in margin, and that being your max loss is a decent trade. On the upside, because I made it a broker and

[03:05] butterfly the max loss is just under $200 to be specific it's $196 let's just round it so I have max loss of $200 to the upside max loss of $400 to the downside and I have a possibility of making

[03:18] close to $600 at the peak here as you close but anywhere within this range is profitable for the trade if I let it cash so obviously again profit can be taken at any point if you are above PDT

[03:30] and actually PDT rule actually changed so this is one of the major incentives for me for trading the XSP and what I encourage a lot of beginner options traders that are looking to get involved with trading spreads specifically and have a margin count. If you trade the XSP, you're using

[03:45] much less risk, which means you can aim to let these types of positions cash settle. If you're trading the SPX, you might be opening yourself to too much risk or too much exposure to the markets on a zero DTU timeline. You can execute your ideas on the SPX, but use the options for the XSP

[04:02] and you can build a nice flow for yourself without having the same risk. So this today, again, was relatively simple. 15 minutes into the market opens, I take a look at the gamma exposure. I'm then assessing, you know, what do I want to do.

[04:16] A couple minutes later, I say, let me just run this position here for the day while I run ahead and plot my gamma exposure levels on the chart for the fly. And anyone that been following my weekly series you guys know this is how I like to start every week is with an analysis of the gamma exposure for the S 500 Now that being said I noticed that there a lot of absence gamma around these two strikes

[04:37] With my experience, I'm expecting the markets to stay choppy within this range. There's a positive gamma exposure island here, so I'm expecting the markets to, you know, be choppier, in a sense, around this range for the week, but also for the 0DT timeline,

[04:49] as it is only Monday. That coincided with what I saw on the 0DTE damage closure here with this concentration. So I made it an easy trade that only took a couple minutes to decide what to do. Again, I didn't want that much risk on a Monday with the 0DTE because if I was in the SPX,

[05:05] it would have taken away or it would have distracted me from doing my analysis for the whole week. My risk profile for the SPX is much larger as I use much bigger sizes here. So this for example I have not opened my weekly swings yet for Friday or next week Friday I plan on doing

[05:21] that right after this video but I'm currently using about $11,000 here on the SPX and that is relatively small for me at any point might have anywhere from $20,000 to $35,000 in XPS options

[05:34] running but for the XSP I'm still only going to use maybe $500 on a 0DT timeline sometimes on a weekly swing for the XSP I'll only use $1K so it allows there to be a cushion allows there to be a lot more room. It means I can hold a little bit longer. And at the same time, it opens up the

[05:49] possibility of squeezing out a few hundred dollars here and there. This is really small size to me. Generally, I'll be around three to five lots even on the XSP. But I generally keep the margin below $1,000, especially if it's a zero DTE position. Guys, if you are struggling to trade the SPX or

[06:04] you're sometimes not confident or you have an idea, do not neglect the XSP. It is just a great way to build up confidence for yourself, especially if you're trying to move away from longer DTE positions and you're trying to get your feet wet with the 0 DTE, 1 DTE, or even weekly

[06:20] options in general, do not neglect this instrument. It is one of my favorites to trade on a shorter time frame. I remember in the early days of the XSP and I was trading it, I would suggest it as an

[06:33] alternative option for people looking to trade. The biggest feedback I got at that time was that liquidity was pretty bad and it is nowhere in comparison to the SPX The SPX will have superior liquidity but on a 0 DTE and even on a 1 DTE timeline

[06:49] there is a decent amount of liquidity to get in and out of your options, especially if you're trading complex spreads. I trade complex spreads on it, and I generally can get filled. I'm willing to pay the asking price.

[07:01] So if I'm trying to buy an option, say, for example, and the option is selling for, let's look at the 1 DTE here, Let's just say we see that the spread is $0.04. That is not great, but it's also not entirely terrible.

[07:15] The ideal price to get filled would be $1.76. Sometimes a trader might put a bid out there for $1.78, so right between the bid and the ask. But let's just say you are impatient.

[07:27] You can obviously just purchase it on the ask. So you're paying for it slightly above the midpoint, which is a great place to get filled. The bid is going to be the ideal place to get filled. The midpoint is generally the next best place to get filled.

[07:41] But you can always just hit it on the ass. Because it is such low risk, in my opinion, it's okay to pay an extra $0.02. Even if you're in three lots, you're paying an extra $0.03 for the option in that case here.

[07:53] And it's not something that I let shy me away from actually trading it. These numbers here might not be exciting from a volume standpoint. On a 0 DTE, it's going to be much better. But even on a 0DT, sometimes I will have to use it to ask if I really want to get into the position or if I'm selling an iron condor.

[08:10] I might just sell it into the bid. At this point, I think it's just an excuse to not trade something different with the XSP. If you are having consistent wins or obviously if you have a massive account, you know, you're on portfolio margin, you're having tremendous success with the SPX, then there's no real reason to go to the XSP.

[08:25] I like to trade both of them. I like to diversify my risk. I like sometimes having low pressure or sometimes if I'm not entirely confident on a 0DT. I love the option which is the point of this video. Anyway, hope you guys enjoyed this video I just want to showcase to you guys a live example of a 0DTB butterfly with the XSP

[08:41] What type of positions you can run with it? You know I like to include gamma exposure a little bit of some analysis here of what's going on with the markets and you guys can see A live risk profile here as well as on options chat. Let me know if you enjoyed this video

[08:53] Leave a comment down below like if you learned something subscribe if you're new here and I'll catch you in the next one. Thanks for watching