Mastering 0DTE Options: High Risk, High Reward in a Single Day

 Discover how zero days to expiration (0DTE) options are changing the face of short-term trading.

What Are Zero Days to Expiration (0DTE) Options?

Zero days to expiration (0DTE) options are contracts that expire the same day they're traded. These high-risk, high-reward financial instruments either represent the final day in a longer-dated option’s life or are specifically created to exist for just one trading session.

Interest in 0DTE options has skyrocketed recently. According to the New York Stock Exchange, more than 56% of all retail options volume is now in options with five or fewer days to expiration, up from just 35% in 2019. This rise marks a notable shift in retail trading behavior toward shorter-term, event-driven speculation.

How Do 0DTE Options Work?

Theoretically, 0DTE options function like any other option—calls and puts with strike prices and premiums. The only difference is time. With just hours left before expiration, every tick in the market can significantly impact the option's value.

In practice, 0DTE options are not typically used for complex, multi-leg strategies. Instead, traders often use them for quick, directional plays, usually on highly liquid instruments like the SPDR S&P 500 ETF Trust (SPY), which now offers 0DTE options every single trading day.

Popular approaches include:

Buying out-of-the-money calls to catch an intraday rally.

Selling puts when expecting a bounce.

These strategies can yield large returns with minimal capital, but they also come with low probability and high volatility, which can lead to consistent small losses that accumulate over time.

The Role of Theta in 0DTE Options

Theta, or time decay, is the rate at which an option loses value as time passes. For longer-dated options, this decay is gradual. But with 0DTE options, theta decay happens all at once—in a single trading day.

For example, if a 5DTE option has a theta of $0.20 per day, that entire $1 of time value disappears over five days. With a 0DTE option, the entire extrinsic value evaporates by market close—making timing crucial.

0DTE Trading Strategies

While the entire suite of options strategies can be theoretically applied to 0DTE options, most traders keep it simple:

- Directional Bets: Naked calls and puts are used to bet on sharp, short-term moves.

- Scalp Trading: Quick in-and-out trades to capture minute price fluctuations.

- Event-Based Plays: Trading around key announcements like Fed meetings or earnings reports.

These trades are often made with a defined risk, and traders must accept the possibility of a total loss of premium.

0DTE vs. Other DTE Options

- In options terminology, DTE stands for days-to-expiration. While a 21DTE option has three weeks of time value, a 0DTE option has only the trading day to move in your favor.

- Shorter DTEs offer faster trades but higher risks. Longer DTEs provide more time for a trade thesis to play out, often with smoother theta decay.

- Research from tastylive suggests that 45DTE might be optimal for short premium strategies, striking a balance between meaningful theta decay and enough “time to be right.” However, 0DTEs remain compelling for traders seeking quick, event-driven opportunities.

Final Thoughts: Should You Trade 0DTE Options?

0DTE options can be a powerful tool in the hands of disciplined traders. They offer high leverage, fast returns, and pinpoint exposure to market moves. However, they also demand precise timing, strong risk management, and a clear understanding of their low probability nature.

Before diving in, consider:

- Are you prepared for rapid, volatile price swings?

- Can you handle the psychological toll of frequent small losses?

- Do you have a clear edge or strategy that fits 0DTE trading?

If the answer is yes, 0DTE options may offer a new way to engage with the market—one trading day at a time.