Technical Analysis

Tastylive: This One Metric Changed Our 0DTE Trades Forever

Posted on by Andrew Packer

The past few years have seen the massive rise of trading zero-day options. These are options that expire the same day the trade is made. This tool has only been available for less than five years. Yet it’s quickly grown to become about half of all daily option trading.

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    • Because of the short amount of time involved in these trades, traders often get caught on the wrong side. Understanding daily market moves can help get a better sense of market moves.

    Looking at data for the S&P 500, there’s some sign that market volatility can play a role. How market volatility looks in pre-market trading indicates how trades may play out.

    If volatility is up in the pre-market, investors can earn small, but positive returns. That’s for trades going out as far as 45 days. If volatility is down pre-market, the returns substantially improve.

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    Generally, when putting on trades, traders want higher volatility. That’s because it means higher option premiums. When selling options, higher volatility premiums generally lead to higher profits.

    Option buyers may not want higher volatility for the same reason. Investors who use shorter time periods may want to take their profits sooner in the day. That can avoid waiting until expiration, which could lead to a reversal.

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