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A logic behind trading 0 – 1 DTE spreads with SPX underlying

Trading rulesIn our trading group a trader posted this question:

“Why you might do a 0-1 DTE trade on SPX vs a longer period such as 15-30 DTE…along with the associated logic of the strike selection.”

There are several reasons for choosing 0 – 1 DTE trades if you can actually get them and I will try to list them all here.

1) First, you will not be able to get these trades often. They usually happen when the market is moving rapidly in any direction. In calm days, these strikes have no premium. I do these trades to capture and ride that movement/momentum. Also you do not want these trades in a choppy market as they can kill you. Only in a strong trending market that day.
2) Profitability. These trades are way more profitable in terms of %AR. Simply put if I collect $30 or in some instances $80 in a day vs $200 in 10 – 15 days (assuming you open a 30 DTE and close it for 50% credit in 10 days), the 0 DTE is more profitable as I can do it 10x in a same period and collect more credit overall.
3) Give the market as little time as possible to turn against you. If you happen to choose strikes out of the expected move range it is somewhat rare (but it still can happen) for the market to move out of that range or beyond 1SD in a day and stay there! It is very likely to happen in 10 to 15 days. But not in a day. Of course, in volatile days you will see it happening even in a day but these are really extremes.
4) Better maneuverability of the trade. If I open a trade with 0 – 1 DTE and the trade goes bust and gets in the money, you still will be able to roll it to 9 DTE or 14 DTE for a credit. A 15 or 30 DTE trade is pretty much impossible to roll unless you roll it to 90 DTE or 150 DTE. You can try this in your virtual account. Open a simulated 1 DTE in the money trade and try to roll it next day into different DTE. You will see that it will be easier (well, unless the trade is too deep in the money) to roll it. And you can still roll it to favorable DTE such as 14 DTE in lieu of 150 (who wants to wait another 150 days!?)
My premium min limit on any trade with max 14 DTE is $20 (0.20) so if I can get it in 0 DTE trade in lieu of 7 or 14 DTE why leave it on the table? Of course, these trades are more intensive on management. You must keep an eye on them. Open a trade and go fishing for the rest of the day can bring you unpleasant surprises when you get back. So if I have a trade and the market behaves unpredictably and I suddenly must leave the computer then I roll that trade no matter where it is.

What’s the logic behind selecting my strikes?


I want to go as far OTM as possible. So I have my min. credit limit and I go as far as possible to be far away OTM and get that credit. Only if I see the market in a really strong momentum in one direction (like during sell offs or extremely strong rallies – which you can recognize that they have no pullbacks (in a rally) or bounces (in a sell off) – then I go closer to the money expecting the market to move away from my strikes quickly).

You can also go to my strategy page and read more about these rules.

3 responses to “A logic behind trading 0 – 1 DTE spreads with SPX underlying”

  1. Ernie says:

    All of the points made against the strategy are based upon using a suboptimal strategy. I can show you how to optimize the strategy in a way to completely dismiss your objections with an asymmetric risk to reward trade. Further I can show how this trade can produce better and more consistent results in all market conditions than just about any other strategy other than a pure arbitrage.

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