Same Day vs. Longer Out Expirations

There appears to be much interest in same-day expiration options (0DTE). This is a topic I wrote about in the past but merits revisiting.

Zero day to expiration options are extremely exciting, adrenaline inducing, high potential trades and yes, you can make a lot of money. We have executed many of these trades in the past and still show participants in the Trading Room on occasion how to maneuver them to profit. In fact, I personally love these trades, given the amazing opportunity to make a huge gain in a short period of time.

But, you can also lose it all very quickly.

The real danger is in its lure. I have seen many a trader be attracted to this type of execution with its enormous potential. They enter a position, ride it up, make a lot of money. Then they do it again, and again. The gains steadily flow in… until they don’t. At some point, the market reverses, premium is lost and the trader stares at the screen like a deer in the headlights. Suddenly, the position loses 10%, then 20% and 30% before they can even react. At 40% loss, they consider dumping their position but question whether they should just stay in it, having lost so much already. After all, it may come back up, right?

Wrong. Maybe it will, maybe it won’t.

They try to rationalize the trade, but it’s too late. Even if the stock returns to its previous high, the option price is well below where it was. Of course, the trader feels like the market stole his or her gain, so they stay with it, turning a promising trade into a ‘hope and pray’ situation.

0DTE trades are ultimately destined to take your money. In fact, they are designed to separate you from your hard-earned cash by toying with your emotions. Resisting greed is one of the hardest things to do, yet we feed off it. If you really doubt what I say, allocate a small balance to such trading and watch how long before it vanishes. You might as well lose at the casino. Fun times.

At DayTradeSPY, we use a different approach, considering the expectation that you are looking at a longer-term career in this field. For that reason, we trade with time to expiration. On Mondays and Tuesdays, we generally trade same week Friday’s expiration. Wednesdays through Fridays, we look at the following Friday’s expiration. The time (theta) loss is much smaller and tends to soften the loss when the stock turns against us. Having time on our side is very comforting when a bad report is published, someone makes a comment or a CEO downplays a great earnings report, as recently happened with Amazon. In disbelief, Amazon reported actual earnings of 1.68 vs. the estimate of 1.33, beating the analysts by over 26%. This would induce any reasonable trader to jump into calls, yet the shares tanked 8.3% on concerns about the effect tariffs will have on retail prices and consumption, once inventory is depleted.

Buying time smoothens these sudden spikes and facilitates the stock’s recovery in the days ahead. You may not get back up to where you purchased your options but you may limit your loss.

Suddenly, earning 5% a day vs. 50% an hour seems much more sensible.

Remember too, our Trading Room teaches traders to be calm throughout the storm, controlled in their behavior and analytical in assessing trades. By removing the emotion out of your positions, you stand a much better chance at long-term success. We want to see our traders in for the long haul, not just until they deplete their trading funds.

We are in difficult times. To weather the economic storms emanating from mostly the current Administration requires great patience and discipline. Eagle Financial Publications’ veteran Jon Johnson and I provide the oversight you need in our exclusive Trading Room. We not just teach you how to trade but how to counter the forces working against your emotions to create great trades. Check us out.

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Create great trades,

Hugh