0DTE Options Strategies: Insights from 25k Trades (2024)

As expiration approaches, many traders exit positions or roll into new opportunities.For some traders, the final hours of an option contract’s life are when the fun really begins. These traders implement 0DTE strategies, hoping to profit at the end of an option’s life.

There have already been over half a million 0DTE contractstraded in the Option Alpha platform.In fact, we’ve seen more than 50% of users trade a 0DTE option contract on multiple occasions. 50%! How, and why, are traders using Option Alpha’s bots to automate their intraday strategies?

We analyzed over 25,000 0DTE trades to uncover how traders apply these strategies to give you the data from real trades in live markets.

All research data is anonymous. No personal identifiers or brokerage account information is ever used. Trade statistics that come directly from the platform include only non-identifiable position details such as entry and exit date, strategy type, underlying symbol, and performance metrics. Our research team analyzes this anonymized data to better understand how traders use our platform and share objective research insights with our community.

What is a 0DTE options strategy?

Every options contract expires on a specific date. DTE stands for “days to expiration” and represents the time remaining until an options contract expires. Depending on the underlying asset, these expirations may be quarterly, monthly, weekly, or even multiple times per week.

A 0DTE strategy opens and closes a position on the contract's expiration day. Typically, traders sell to open contract(s) in the morning and hope to repurchase them for a lower price before the close.

Why? Because on expiration day, nearly all of the option’s time value, or theta, has decayed. What little extrinsic value remains quickly disappears throughout the day and only the intrinsic value remains.

If the contract remains out-of-the-money, or volatility declines, the trader may have an opportunity to exit the trade for a quick profit.

Pro Tip: Traders typically use highly liquid underlyings such as SPY, QQQ, or other tickers with high daily options volume when trading these short duration strategies.

Many traders enjoy this strategy because of the “sleep at night” factor. With no positions held overnight, they are not subject to the risk that after-hours price moves will affect their returns.

Most popular 0DTE tickers & strategies

There were 11,204 SPY positions (~22,000 trades), making up 88% of the total 0DTE trading volume in Option Alpha’s automated trading platform.

Traders used 50 additional tickers in their 0DTE trades, primarily with Friday expirations. SPY was the only ticker with more than 1,000 positions during the period studied.Much of this ticker concentration is due to expiration cycles. SPY, QQQ, and IWM have three expirations per week, whereas the other 48 tickers only have weekly and monthly expiration cycles.

We analyzed eight different 0DTE options strategies. Bot traders used directionally neutral strategies like iron condors and iron butterflies most often.

0DTE Options Strategies: Insights from 25k Trades (2)

Traders often sell an iron condor or iron butterfly, hoping that the security will trade between or near their short strike prices, allowing them to keep a portion of the premium initially collected.

For more context on these strategies, see the Option Alpha Handbook: Iron butterflies and iron condors.

Why iron butterflies and iron condors?

Given that most 0DTE traders are net options sellers (87% of positions were opened for a net credit), traders chose iron condors, iron butterflies, and credit spreads most often.

Figure 2 shows the average premium received per contract by trade type. (E.g., if a trader opened five iron butterflies for $1,000 of premium, the premium per contract is $200).

0DTE Options Strategies: Insights from 25k Trades (3)

Sellers receive more premium for iron butterflies because both short strikes are at-the-money. ATM options experience more rapid theta decay than OTM options.

In addition to the extra premium, traders likely prefer neutral strategies (i.e., iron butterflies and condors) because they do not require a directional bias of the underlying security. Neutral strategies allow traders to capitalize on decreasing implied volatility and theta without having to correctly guess price direction.

The average iron butterfly was open for 137 minutes vs. 155 minutes for iron condors. This makes sense because contracts further OTM decay at a slower rate, so iron condor trades generally require a longer trade duration.

The following analysis focuses on the granular details of 0DTE iron condors and iron butterflies, examining their construction and the effectiveness of directionally neutral 0DTE strategies.

0DTE wins & losses

How well did these 0DTE neutral strategies perform?

Traders opened 4,959 iron butterflies with a win rate of 72%. Traders opened 3,170 iron condors with a win rate of 63%.

0DTE Options Strategies: Insights from 25k Trades (4)

Since OA traders used over 50 tickers and each had unique pricing, we standardized raw profit and loss values by the initial premium received to calculate a percentage return.

On average, iron butterflies returned 4.62% of the initial premium received. Iron condors had a slightly higher return of 7.94%.

0DTE Options Strategies: Insights from 25k Trades (5)

Interestingly, the average return for iron condors opened within two hours of the open was -0.36%; iron butterfly returns were nearly unchanged.

However, the 759 iron condor positions that were opened outside of two hours after the open had an average return of 37%. Over two-thirds (67%) of these positions expired worthless, meaning the trader kept the full premium (return of 100%).

These profit statistics are not meant to define any specific trading edge but demonstrate that timing changes can result in a meaningful impact on returns when trading 0DTE strategies.

0DTE strike price selection

For all multi-leg options strategies, strike price selection and spread width determine much of the strategy’s probability of success.The risk and premium increases for iron condors and iron butterflies as the distance between the short and long strike prices widened.Widening the distance between iron condor short strike prices increased the probability of success but lowered the premium received.

81% of 0DTE iron butterfly positions had symmetrical long wings that were $9.54 wide on average, meaning the distance from short strike to long strike was the same on both sides of the structure.

96% of iron condors had symmetrical wings that were $7.58 wide on average. The difference in wing width for the non symmetrical positions was primarily due to delta skew changing throughout the trading day.

Figures 5 and 6 show the average spread distance between the short and long strikes for iron condors and iron butterflies on the three most popular underlyings.

0DTE Options Strategies: Insights from 25k Trades (6)

0DTE Options Strategies: Insights from 25k Trades (7)

Table 1 shows average profit percentages and contracts traded for differing spread widths.

0DTE Options Strategies: Insights from 25k Trades (8)

When trading narrower wings, traders open twice the number of iron condor contracts. This is because the capital at risk is lower for narrow iron condors, allowing the trader to open more positions for the same level of risk. Both profit and the number of contracts are largely unchanged between narrow and wide wings.

Narrower iron condors have a higher percentage return. The average position for both cohorts was opened around five hours before expiration, meaning the profitability difference is not due to when the position was opened.

Time in trade

A key aspect of a 0DTE trade is how long the trader holds a position. Given the short timeframe of these positions, we measured trade duration in minutes.

Figure 7 shows the number of 0DTE iron butterflies opened and closed throughout the day. The first plot shows when positions were opened while the second shows when positions were closed.

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Nearly all iron butterflies were opened within the first two hours of the market open. 40% of positions were closed with more than 200 minutes remaining in the trading day.On average, OA traders opened iron butterflies 58 minutes after the market opened and closed their position with 3 hours and 13 minutes before the market closed.

Figure 8 shows the same information as Figure 8 but for iron condor positions.

0DTE Options Strategies: Insights from 25k Trades (10)

Similar to iron butterflies, traders typically opened iron condors within the first two hours of the trading day.However, unlike the iron butterfly positions, 20% of iron condors were held to expiration. This is likely due to the fact that an iron butterfly will have a short ITM option at expiration and traders want to avoid assignment, whereas an iron condor’s short strike prices can finish OTM.

On average, traders opened iron condors 1 hour and 43 minutes after the market opened and closed their positions with 2 hours and 13 minutes before market closing.

94% of iron condors held to expiration were full winners, meaning the positions expired worthless (i.e., premium received equals final profit). Unlike iron condors, iron butterflies can never be a “full winner” because one side of the trade will always be in the money.

We've updated this research with 230k 0DTE options trades to examine what successful Option Alpha traders are doing. See the new research here:0DTE Options: Strategy Insights from the Top Performing Trades

Automating 0DTE strategies

0DTE trading is incredibly popular. Intraday positions allow traders to capitalize on opportunities quickly and maximize the number of high probability occurrences.Entering and exiting trades on the same day also eliminates overnight risk and doesn’t tie up capital for more than a few hours. Now, automation makes 0DTE trading accessible for every trader.

0DTE strategies present unique challenges, however. Gamma risk is high on expiration day and option premiums move rapidly, so reacting to price changes and managing positions quickly is essential.

Why is the Option Alpha Community trading so many 0DTE strategies?

With autotrading, the heavy lifting can be offloaded onto bots. Executing trades at a specific time, managing exits at defined price levels, and closing positions before the bell has never been easier. You can use bot templates to instantly clone and customize strategies shared in the Community.

How are bot traders using automation to optimize their trading?

We’ve outlined the different setups traders target when using 0DTE options. No-code automation allows anyone to implement their favorite short-term strategy.

Automation provides new opportunities for investors that may not be able to trade during market hours. Automated trading creates new possibilities for traders that were limited by external factors that prohibited them from manually trading throughout the day.

Many users have also adopted a hybrid approach to automating 0DTE strategies. By adding one-click buttons to their bots, they can run an automation instantly, triggering a set of complex decisions in milliseconds. Our traders are using buttons to check open profits, enter limit orders, liquidate positions, and more.

That’s the power of automation.

0DTE takeaways

Market opportunities exist on all timeframes.0DTE strategies may not be for everyone; the time commitment for manually managing an expiration-day strategy makes it impossible for many traders. Manually trading intraday strategies require you to be present and engaged at specific times to manually execute orders.

Do short-term, neutral strategies work? They can, but market conditions heavily impact returns. While this research has focused on trade structure (strikes, tickers, and timing), the volatility environment influences drawdowns and intraday P/L volatility. The opportunity for nuance in decision-making for these trades is limitless.

Should you be trading 0DTE options in your account?If you’re interested in adding a 0DTE strategy to your portfolio, where should you go next?

Develop a framework for testing multiple strategies. Run multiple 0DTE bots in a paper trading account, testing various inputs.

Consider varying trade structures (iron butterfly, iron condor, credit spreads, etc.) based on market volatility. Consider incorporating hedges for challenged positions and assess when hedges work best and when mean-reversion wins. Consider the number of positions traded each day and how to vary strike prices throughout the day. Run multiple bots with different position capital allocations to find the risk profile that works for you.

0DTE Options Strategies: Insights from 25k Trades (2024)


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