Articles and Updates
0DTE Options Primer: What Investors Should Know About Expiration-Day Positions
- Zero-days to expiration options, or 0DTE options, are not new
- 0DTE options are simply listed options that have reached their expiration date – eventually every option expires
- As expirations have become a daily event for some products, the availability of 0DTE options has naturally increased
- 0DTE options have less than one full trading day before they expire
Recently, a concept that has generated many conversations is the zero-days to expiration, or 0DTE, option. 0DTE options are not a new product, nor are they a new strategy. Despite what the moniker may suggest, 0DTE options are rarely listed on the morning of expiration. Rather, they are likely options that have been listed for days, weeks or even months, and like all options once they reach their expiration date, they have zero days left till expiration.
The reason these options are described as 0DTE is simple: They have reached the end of their lifecycle. This truth eventually arrives for all options. In essence, every option will become a 0DTE option on its last day – conceptually, for 0DTE options, what is most relevant is the expiration.
The escalated discussion around 0DTE options stems from the potential impact they may have on markets. As with option products themselves, expiration cycles have changed since listed options began trading in the United States in 1973. The most profound change in option trading has been the concept of daily options on certain underlyings and the daily expirations that accompany them.
- For more information, view or download the Options Expiration Calendar
- Writers of 0DTE options could be adversely affected by an increase in implied volatility, while buyers may benefit
- Theta (or time decay) is generally considered to be a favorable function for sellers of options and unfavorable to buyers
- Due to the risk profile of expiring options, large moves in the underlying can yield significant losses over a short period of time for sellers of 0DTE options
- As with any option trade, buyers of 0DTE options have a defined risk profile, which includes the potential to lose up to the total amount paid for the option
For further information on options, investors can review the Characteristics and Risks of Standardized Options, also known as the Options Disclosure Document, or ODD. The ODD provides explanations on call and put options, equity and index options, and many other aspects of options investing.