I day trade SPY, mostly scalp moves. Never hold overnight. Was trading 0dte with success back in 2023 and decided it was too intense/gambly and unsustainable long term. Switching to 3-5 DTE has led to a great 2024.
But I still am looking to improve and wondering if 1-2 DTE would be better. This led me to really study the Greeks, specifically, Delta and Theta.
If SPY is trading at 531.50, for this example we will buy the 531P, ITM.
The Delta of a 0DTE is around $0.48, The Delta of a 1dte around $0.50 and the Delta of a 2-5 DTE all around $0.56-0.58. So right off the bat, every $1.00 move in SPY, you are netting LESS per contract on 0DTE.
The Theta of a 0DTE is the full price of the contract, The Delta of a 1 dte might be around half said contract and again, 2-5 DTE all seem to be in that same $0.19-$0.21 area.
So I guess, if anyone has an account of $5,000 or more, Why on earth would you trade 0dte? The Theta is killing you for no reason, when you can buy a 3-5 dte, and make the same move. At the same time, Why buy the 3-5 dte if the 2 dte is a cheaper contract, giving essentially the same exact Delta and Theta as the 3-5. What am i missing here?
I Understand someone might say they can buy 10 $0.40 contracts and watch them go 100% quite easily but you can buy 2 $2.00 contracts and watch those go to the same profit, and not have to deal with being frosty the snowman melting in the Sun all day.
If you have a small account, and need to afford cheap contracts, I understand that answer, but to trade day in and day out, Why submit to that if you can afford going even 1-2 DTE where the move in your direction at any point that day will put you Green
Why Do People Day Trade 0dte if they have a +$5,000 account?
byu/Ok_Concentrate_4168 inoptions
Posted by Ok_Concentrate_4168
5 Comments
> If SPY is trading at 531.50, for this example we will buy the 531P, ITM.
That’s OTM, not ITM. You’d need to buy the 532p to be ITM.
> The Delta of a 0DTE is around $0.48, The Delta of a 1dte around $0.50 and the Delta of a 2-5 DTE all around $0.56-0.58. So right off the bat, every $1.00 move in SPY, you are netting LESS per contract on 0DTE.
Sure, but then there’s gamma. It’s like saying a Prius going 50 mph is the faster car, because at the exact same time, a Lambo is only going 48 mph. You can take a single snapshot in time and find higher delta for anything, but since 0 DTE is all about gamma (if you are trading long) you care more about how rapidly delta will change, not what it is right this second.
> Why on earth would you trade 0dte?
Long traders for gamma, short traders for theta.
You might find it educational to compare the 0 DTE, 1 DTE, 2 DTE, etc. through 4 DTE option chains and note down which OTM strike is the first to reach 0 delta, and which ITM strike is first to reach 100 delta. Assuming a uniform distribution of volatility across those chains, the strikes that range from 0 to 100 delta **ought to get closer together the closer you get to expiration**. That’s what gamma trading is all about. A 40 delta OTM option could flip to a 60 delta ITM option with a very small move of the underlying price, much smaller on 0 DTE than it would be at 4 DTE and certainly much smaller than for 60 DTE.
I am new to trading. I finally figured out how 0DTE options work and have made some money. When something works, why change it? Like maybe one day if I have a much larger account I would learn other strategies. But most people are going to learn how to do their thing and repeat it.
Greed and untreated gambling addiction in my case.
That’s an interesting question and u/PapaCharlie9 already provided a great answer.
>So I guess, if anyone has an account of $5,000 or more, Why on earth would you trade 0dte?
As someone who just recently started to learn more about options trading my first response would be that I can trade more. Not sure if that’s makes sense but if it’s 0DTE I make my profit (or loss) today and have my funds available again for new trades tomorrow.
Similar to me right now, I am selling cash-secured puts always with the expiry next Friday instead of using the monthly expiration dates because in a month I could sell four puts total. Summed up those four pay more than selling one put monthly.
Sure that also comes with its own downsides but right now with a small portfolio, it feels like the extra return is worth the extra risk.
Less capital requirement for a bigger size, steeper gamma ramp. If you don’t like it and feels like a gamble just trade futures. Futures or 0dte. Nothing else unless lepas.