Category Archives: 0DTE Strategies

Asymmetric risk is the idea of taking a small risk to produce a comparatively large return. This simple, yet mind-blowing concept will transform your trading career and overall quality of life. Yet, the concept of taking asymmetric risks is not discussed or even mentioned as an option in common trading strategies.

Give me a lever long enough and a fulcrum on which to place it, and I shall move the world. – Archimedes

Perhaps it would be impossible to find a lever large enough, and tough enough to not snap, or a fulcrum that wouldn’t be crushed, to move the world, but you could certainly find what you needed to move a very large boulder with little effort. And the same is so for trading strategies. Then why wouldn’t you use such power if it were at hand?

The reason is that we are conditioned, or even programmed to believe such power is not within our reach, or even available to us, that there is undo risk or the opportunities are so fleeting as to be futile to pursue. This is simply not the case, in fact, the opportunity to use an asymmetric method in your trading is frequently available to you, and it’s quite simple to employ. In my opinion, if you are presented with an opportunity to use asymmetric risk to reward, you should, without hesitation or fail, in fact, you should be seeking it out as the first option before all other options.

The ability to do great things with little effort, by using a bit of ingenuity escapes the vast majority of people, but that doesn’t have to be you. The really crazy part of this concept is that this doesn’t just apply to trading, asymmetric opportunities exist in all parts of life, yet we are blind to them. We only need to open our eyes and our minds.

Have you ever read 1926 classic The Richest Man in Babylon, by George S. Clason? It’s a book of 4,000-year-old parables filled with financial advice that is relevant even today. People these days look at anything (books, movies, ideas) more than 3 years old as useless, so yesterday. But this book, printed almost a century ago, with 4,000-year-old stories, has a great deal to teach us about the asymmetric risk to reward.

Consider the parable of the merchant trapped outside the city walls because it was nighttime. The gates of the city would not open until morning. The merchant had just come back from selling his wares and had quite a hefty amount of gold coins on him. As he was about to light his bonfire to camp outside the gate, he heard the bleating of a flock of sheep.

Another merchant, a sheep master, arrived with this flock. Introductions were made and the sheep master said he lived nearby and wanted to sell his sheep for a good price in the morning. Suddenly, a house servant of the sheep master arrived and with bated breath warned his master that his son was gravely injured in an accident. The sheep master was extremely worried and told the merchant he would sell all of his sheep at a great discount so he could hurry home to his son.

The sheep master said he had over 200 sheep with him. The merchant’s gold was just enough to cover the asking price for all the sheep. And he knew from experience that other merchants in the city would pay more than twice the price for those 200 sheep. But there was no way to confirm that there were 200 sheep because it was too dark to count them. The merchant was presented with an asymmetric risk. The reward was to make a quick profit by buying the sheep for cheap and then selling them in the city for a much higher price. The risk was that the old man might be lying to him about the number of sheep. What if there are only 100 or 50 sheep in the flock? The merchant ended up not buying the sheep.

So the old man decided to hurry home and left his servant there to sell the sheep in the morning. The next morning, when the gates opened other merchants came out and bid up the price of the sheep to four times the amount of gold the sheep master offered the merchant. The first merchant squandered his chance to profit greatly because he didn’t take the asymmetric risk.

Obviously, we are not talking about trading sheep here on a site dedicated to trading the last day of options expiration, but we are talking about recognizing the opportunity and a situation that affords you the ability to achieve asymmetric profits from small amounts of risk capital, often as much as 500-1500% from trades as small as $50. So, why wouldn’t you do this? Why would you do something else under the same conditions, that only offered a 10 to 20% return on $1000 of risk capital? This seems to be a rhetorical question.

The reason you don’t do the asymmetric trade is that you are completely oblivious to it, you have been conditioned to believe it doesn’t exist. therefore it’s not on the table as a possibility…it never enters your mind. And so, you suffer great anxiety and the peril of risking large amounts of your money for small scraps of profit. yet the opportunity is right there, every time.

Earlier in this post, I said asymmetric risks are everywhere in life, not just in trading. Often we are confronted with mind-blowing opportunities that could change our lives. But we don’t even recognize they are there, right before us, within our grasp, and all we have to do is ask. But we don’t. And why? Because we were afraid of rejection, the person would say no. Consider this…you avoid great opportunities because you are afraid someone says no to you. But what if they had said yes? Well, you will never know, will you?

Asymmetric risks do not favor those who are complacent with the status quo, for the unadventurous, or those who are simply to lazy to take small risks, or afraid to just open their eyes, or squeamish to ask simple questions. However, if you can get over these simple social quirks, the world of abundance awaits you.

Why don’t you start with our 0DTE service. It is all about asymmetric risk to reward. With very little effort you could be that merchant that took a small risk with a trial.

The 0DTE, a.k.a. Zero Days to Expiration, options trading strategy gets its edge from the exponentially increasing decay of premium as expiration nears. There’s no other day where it decays faster than on that very last day of options expiration. The most popular asset to trade on 0DTE is options on the S&P 500 Index (SPX) because of the number of opportunities a trader has each week. There are three expiring contracts for options on the index every week; Monday, Wednesday and Friday. But the SPX isn’t the only asset class that has 3 opportunities per week, there are at least 3 others; the SPY ETF, the S&P E-mini Futures (/ES), and the Nasdaq Index (NQX).

Many people tout the 0DTE strategy as a great way to produce consistent income using high probability strategies like ultra low delta Credit Spreads and super-wide Iron Condors. This appears to be a honeypot to many naive retail traders, and so they dive. waist deep into services that promote 0DTE with the SPX.

So, why are options on the SPX most popular? Is it better than the others, easier to trade, easier to profit, lower cost, fewer restrictions? The answers will surprise you. First a spoiler alert, the SPX is definitely not the best way to trade options on the 0DTE.

Before we talk about why the SPX is not the best way to trade a 0DTE strategy, let’s take an objective look at the differences between these 4 asset types; the SPX, the SPY, the S&P E-mini and the NDX. You should first know that all 4 assets have 3 expiring contracts per week. If there’s a holiday on Monday or Friday, then Monday expirations are moved to Tuesday, and Friday expirations are moved to Thursday. The next thing you need to know is that index options are European style, while the SPY and futures are American style options contracts. For an explanation of the difference between American and European options go here.

So, the first way we’ll tackle the which is better question ir to compare European and American options.

EXPIRATION EUROPEAN: Gives the option holder the right to exercise the option holder the right to exercise the option only at the pre-agreed future date and price. Beware of Monthly AM vs Weekly PM expirations, only choose weeklies that have PM expirations, otherwise you risk significant capital loss from overnight changes in the index price.

EXPIRATION AMERICAN: Gives the option holder the right to exercise the option at any date and time before the expiration date at the pre-agreed price. Always PM expirations.

SETTLEMENT EUROPEAN: Always settled in cash, there’s no underlying because the index is just a calculated value.

SETTLEMENT AMERICAN: Settled in cash if you sell your option prior to expiration. However, if your option is assigned prior to expiation, then you will be responsible for the margin requirement of the received asset. If your option is ITM at expiration there will be automatic assignment, otherwise nothing will happen, as it will be worthless.

PREMIUM:The liberty to exercise American options at any time makes them more in demand, and therefore they typically have more premium associated with them. This is a good thing for 0DTE as the greater the premium, the greater the potential profit, and lower risk.

LIQUIDITY: European options on the SPX generally have greater volume and open interest than the E-mini Futures, however both are highly liquid, and regardless of your order size it is likely to be filled with a minimal spread with either the the SPX or E-mini. Same goes for the SPY ETF. The NDX is a different story, it is far less liquid with much larger spreads, and is much more expensive to boot.

ANALYSIS: The E-mini futures are far easier to analyze because they are available to trade 23 hours a say, as opposed to the SPX which is only traded during normal market hours. In addition to the restricted hours, there’s no volume associated with the index, because nobody trades the index directly, so volumetric analysis is impossible. However with the E-mini there is volume and so that along with being open 23 hours a day, make analysis much easier and more accurate compared to the SPX.

TRADING: As with analysis, trading is much easier with the E-mini than with the SPX or SPY (NDX really isn’t worth it). You can trade the E-mini all hours of the day and night, except for a small window in the early evening between 5 and 6PM EDT. This provides far more opportunity to profit and to take advantage of external events that can affect price. With the SPX you are often left with a surprise if you attempt to enter a trade and hold it overnight. Also, you can’t take advantage of early morning economic reports prior to the market opening, as you can with the E-mini.

PATTERN DAY TRADER RULE: If your account is not at least $25,000 then you are at risk of violating the PDT Rule with the SPX and the SPY if you open and close an SPX or SPY options trade more than 4 times within a 5 day rolling window. You risk having your account halted for 90 days upon your fist violation. There is no such restriction with E-mini futures, you can open and close trades as often as you like, with no restriction on account size.

COMMISSIONS: The cost of trading SPX and SPY options is generally less, with most brokers offering prices as low as 65 cents per contract plus exchange fees. With the E-mini, most brokers start new traders off at $2.25 per contract, but after a short while you can usually negotiate that price below $1 per contract, plus exchange fees.So, this is a clear advantage for the SPX and SPY.

CONCLUSION: So, if cost is your only consideration and you have a small account, then you. might choose the SPX or SPY. However, for every other reason, plus tax reasons which I did not mention (perhaps in another article), the E-mini futures is FAR superior to the SPX when trading the 0DTE strategy. There are no restrictions with regard to the PDT rule, time to trade and analysis, you can execute based on better information and collect far more premium, have higher profit potential, with lower risk, and lower time in the trade.