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Managing 0 DTE Options Risk | Zero Days to Expiration Crash Course
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Managing 0 DTE Options Risk | Zero Days to Expiration Crash Course

Introduction

In this section, the speaker talks about his experience with keeping a clean refrigerator in college and introduces the topic of zero DT options.

  • The speaker mentions that his refrigerator in college was a "literal crime scene."
  • He introduces the topic of zero DT options and asks how he got there.

Daily Butterflies

In this section, the speaker discusses his experience trading daily butterflies and provides some details about his trades.

  • The speaker mentions that he has been trading daily butterflies successfully.
  • He explains that he has been doing them one day before or on the same day.
  • He mentions that he has been doing them 25 to 30 dollars wide.
  • He notes that they have been trading between $4.50 and $5.00.

Volatility Affects

In this section, the speakers discuss how volatility affects butterfly trades.

  • The speakers mention that they recently did a piece on how volatility affects butterfly trades.
  • They note that butterflies widen out or contract as expiration approaches.
  • They mention that they have been doing daily butterflies with one day to go.

Butterfly Trades

In this section, the speakers discuss why they don't usually talk about butterflies but explain why zero DT butterflies are different.

  • The speakers note that they haven't spent much time discussing butterflies on their show.
  • They explain that traditional butterfly trades are not very tradable because they don't move much over 45 days.
  • They mention that zero DT butterflies are more tradable because you can play the expected range of the market every day.
  • They note that zero DT butterflies allow you to stay small and have a low buying power requirement.

Observing Prices

In this section, the speakers discuss a study they conducted on zero DT call butterflies with at-the-money bodies and 30 wide wings.

  • The speakers mention that they conducted a study on zero DT call butterflies.
  • They explain that the study observed prices of call butterflies with at-the-money bodies and 30 wide wings.
  • They note that the study looked at daily expected moves in the S&P 500 for moves less than $25, between $25 and $50, and greater than $50.

Introduction

The speaker introduces the topic of discussion.

Topic Introduction

  • The speaker introduces the topic of discussion.

Butterfly Pricing

The speaker discusses how butterfly pricing is affected by expected move and volatility.

Factors Affecting Butterfly Pricing

  • On days with a larger expected move, butterflies will be cheaper.
  • Higher volatility leads to cheaper butterflies.
  • In low IV environments, butterflies would be double the price of what they are now.

SPX Call Butterfly Pricing

The speaker discusses SPX at-the-money call butterfly pricing based on expected moves.

SPX Call Butterfly Pricing Based on Expected Moves

  • For an expected move less than 25, the price of butterflies could be $9.50 for a 30-wide butterfly.
  • For an expected move between 25 and 50, the price is $7.25.
  • As of now, it's trading at around $5 for a 30-wide at-the-money call butterfly.

Probability of Profit (POP)

The speaker explains how probability of profit remains constant regardless of expected move or volatility.

Probability of Profit (POP)

  • POP by expiration is about a 50/50 shot for this afternoon's trading.
  • Butterflies utilize long and short options on a short duration which means that the probability of making a certain percentage intraday stays the same regardless of the expected move or volatility.
  • This is what we call efficient market pricing where all numbers are exactly the same every single day.

Key Takeaway

The speaker emphasizes that the key takeaway is to recognize how much risk you want to take and that the chances of making X are virtually the same no matter what.

Key Takeaway

  • The probability of making X as a percent of the debit paid is going to be the same regardless of expected move or volatility.
  • It's just a decision you have to make about a strategy you'd like to use.
  • All numbers are exactly the same every single day, so it's just a question of getting filled with the price that makes the trade interesting enough for you.

Scalping and Fair Value

In this section, the speaker discusses how scalping works and how fair value affects entry prices.

How Scalping Works

  • Scalping offers the same chance every day to scalp as long as you pay fair value.
  • The chance of scalping depends on what implied volatility is at the time of entry.
  • Entry prices can be higher or lower depending on implied volatility.

Selling Strategies

In this section, the speaker talks about selling strategies and how they are marketed.

Marketing Strategies

  • Some people will try to sell a strategy by saying it's overvalued because market makers are overvaluing them.
  • However, it's just that volatility has expanded or contracted.

Manipulation of S&P 500

In this section, the speaker explains why nobody can manipulate the S&P 500.

Manipulation of S&P 500

  • Nobody can manipulate the S&P 500.
  • There are certain products in the world where manipulation is possible, but not with the S&P 500.

Takeaways from Scalping Yesterday Butterflies

In this section, the speaker provides takeaways from scalping yesterday butterflies.

Key Takeaways

  • Butterflies allow for a hyper-efficient way to play intraday expected moves without tail risk or premium drag that you see on naked options.
  • Naked options go down quickly and are hard to hold onto for too long.
  • Profit targets should be set at 25% to 50% of debit paid for a pop of over 50%.

Profit Targets

In this section, the speaker discusses profit targets and how they work.

Profit Targets

  • Setting profit targets of 25% to 50% of the debit paid will result in a pop of over 50%.
  • If you buy something for four dollars, you should look to make one to two dollars.
  • Managing winners is important no matter what the time frame trade is.

Example Trade

In this section, the speaker provides an example trade and explains how it was managed.

Example Trade

  • The speaker bought a trade for $3.60 and sold it for $5.10, resulting in a profit of $1.50.
  • Managing winners is important regardless of the time frame trade.

Conclusion

In this section, the speaker concludes the discussion on scalping yesterday butterflies.

Conclusion

  • Scalping yesterday butterflies allows for a hyper-efficient way to play intraday expected moves without tail risk or premium drag that you see on naked options.
  • Profit targets should be set at 25% to 50% of debit paid for a pop of over 50%.
Video description

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