Decoding the Rise of Zero Days to Expire (ODTE) Options Trading

The popularity of short-term options contracts has exploded in recent times, with traders rushing to take advantage of Zero Days to Expiry (0DTE) options.

What does 0DTE mean in options trading?

These are contracts with less than a day to expiration, and reportedly the daily notional value in 0DTE options is now nearly $1 trillion. These contracts can be for indices, ETFs or individual stocks. The shorter maturity makes the contract very sensitive to even small changes in the underlying assets. At the same time, faster theta maturities also make these contracts attractive to option writers.

Why are 0DTE settings so popular?

According to SpotGamma, trades in ODTE options account for nearly 44% of the 10-day average daily volume. Last year this figure was only 19%. For context, when Elon Musk indicated a move to acquire Twitter (now X), trading volume in Twitter options exploded nearly sixfold the very next day.

Despite some concerns, the trend in ODTE opportunities 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. In addition, exchanges have extended 0DTE contracts to all days of the week, ensuring that volumes keep coming and rising.

Concerns about 0DTE

While derivatives were originally converted as a mechanism to hedge against market volatility, some quarters of Wall Street believe that extreme market movements can be caused by the sudden intraday volume shifts in options. This in turn can lead to large market waves.

For some, however, trading these short-term contracts is a way to ride sharp intraday moves and a path to potential riches. At the end of the day, it’s not just crazy speculation. Sophisticated market participants, including hedge funds and banks, also use short-term options to manage risk on a daily basis.

How do you profit from 0DTE options?

One of the most popular ODTE contracts is the SPX (SPX), but optional shares with monthly expiry also have 0DTE options once a month. TipRank’s Options Tool can help traders navigate the big data surrounding options contracts and currency 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 about opportunities at e-commerce giant Amazon (NASDAQ:AMZN), Click here.

Finally, it pays to have more than one trick up your sleeve. Check out our technical indicators and profit calculator feature options on your way to profit.

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