Quick Verdict: How to Trade 0DTE Options
What is the best way to trade 0DTE options? The most effective 0DTE approach is selling out-of-the-money (OTM) strangles on SPX index options with a strict 4x stop-loss. For added consistency, trade 1DTE instead, which allows overnight theta decay while maintaining rapid premium collection. SPX options also qualify for favorable Section 1256 tax treatment.
What Are 0DTE Options?
0DTE stands for "Zero Days to Expiration." These are options contracts that expire at the end of the same trading day they are traded. A 0DTE option is an options contract that expires at the end of the current trading day (Source)
While options have always eventually become same-day expiration contracts on their final trading day, the explosive growth of 0DTE as a deliberate strategy began in 2022.
In 2022, Cboe expanded to offer weekly options expiring on every trading day. This meant traders could access fresh daily-expiration options on the SPX (S&P 500 index) every single market day (Source).
The appeal is straightforward: 0DTE options experience extreme time decay throughout the day. For options sellers, this means rapid premium collection. For options buyers, it means the potential for outsized returns on small market moves — but with very high risk of total loss.
0DTE trading is not for everyone. But for disciplined traders who use a systematic approach, it can be an excellent source of consistent daily income.
0DTE vs 1DTE — Which Is Better?
While 0DTE gets all the headlines, I actually prefer trading 1DTE (One Day to Expiration) options for most of my short-dated trades. Here's why:
| Feature | 0DTE | 1DTE |
|---|---|---|
| Time to Expiration | Same day (hours) | Next trading day |
| Theta Decay Speed | Extreme | Very fast |
| Overnight Risk | None | Minimal |
| Premium Collected | Lower | Slightly higher |
| Monitoring Required | Constant intraday | Less intense |
| My Preference | Use occasionally | Primary approach |
The key advantage of 1DTE is that you benefit from overnight theta decay. When you sell a 1DTE strangle at the end of the trading day, much of the time decay occurs overnight while you're asleep. By the next morning, your position has often already decayed significantly in your favor.
That said, 0DTE is absolutely a viable approach, and many traders prefer it. Both work when combined with strict risk management.
Best Underlying for 0DTE: Why SPX Options
I focus exclusively on SPX (S&P 500 Index) options for 0DTE and 1DTE trading. Here's why:
- Liquidity: 0DTE SPX options averaged 2.3 million contracts daily, or 59% of the total SPX volume in 2025. This enormous volume means tight bid-ask spreads and reliable execution (Source)
- European-style settlement: SPX options are European-style, meaning they can only be exercised at expiration — not early. This eliminates the risk of early assignment that comes with American-style options like SPY.
- Cash settlement: SPX options settle in cash. There's no physical stock delivery, which simplifies the process.
- Section 1256 tax treatment: This is a major advantage. See below.
Section 1256 Tax Treatment for SPX Options
One of the biggest reasons to trade SPX over SPY, QQQ, or individual stock options is the tax benefit. Because index options are 1256 contracts, they qualify for the 60/40 tax treatment — meaning 60% of your profits are treated as long-term capital gains and 40% as short-term capital gains. It doesn't matter how long you hold the position (Source).
This means even on a trade that lasts a few hours, 60% of your profit is taxed at the lower long-term capital gains rate. Section 1256 contracts receive automatic 60% long-term / 40% short-term capital gains treatment, regardless of how long you hold them. This can reduce your effective tax rate from 37% (ordinary income) to as low as 26.8% for high earners (Source).
For an active 0DTE or 1DTE trader, this tax advantage can save thousands of dollars per year. SPY and individual stock options do NOT qualify for this treatment. Equity and ETF options get taxed at the short or long-term capital gains rate depending on how long you hold the position (Source).
For the official IRS code, see Section 1256 at Cornell Law Institute. For a trader-friendly explanation, see Cboe's index options tax treatment guide.
The Core Strategy: Selling OTM Strangles on SPX
My 0DTE/1DTE strategy involves selling out-of-the-money (OTM) strangles on SPX. An OTM strangle involves simultaneously selling an out-of-the-money put and an out-of-the-money call with the same expiration date but different strike prices.
Here's the step-by-step process:
Step 1 — Identify Entry Conditions
Before placing a trade, I assess:
- Current SPX price and the day's trading range
- VIX level (higher VIX = more premium to collect, but also more risk)
- Any major economic reports or Fed announcements scheduled (I'm cautious around high-impact events)
- Whether the market is showing unusual intraday momentum
Step 2 — Sell the OTM Strangle
I sell a put and a call on SPX, both out of the money. For example, if SPX is at 5,800:
- Sell the 5,750 put (approximately 50 points below current price)
- Sell the 5,850 call (approximately 50 points above current price)
- Combined premium collected: approximately $4.00–$8.00 per contract depending on volatility
Both options expire at the end of the next trading day (for 1DTE) or the same day (for 0DTE).
Step 3 — Set Your 4x Stop Loss
This is the most critical step. I use a strict 4x stop-loss rule: if the combined premium collected is $5.00, my maximum loss is capped at $20.00.
If either leg moves against me to the point where total losses would exceed 4x the premium, I close the position immediately. No exceptions. No hoping. No praying.
This mathematically ensures that one losing trade doesn't wipe out many winning trades.
Step 4 — Let Theta Decay Work
If the market stays within my expected range, both options lose value rapidly due to time decay. For 1DTE trades, much of this decay happens overnight.
By the next morning (or end of day for 0DTE), the options have often lost 60–90% of their value, and I either let them expire worthless or close them early for a profit.
Risk Management for 0DTE Trading
0DTE and 1DTE options carry real risk. Gamma exposure is significantly higher in 0DTE contracts compared to weekly or monthly options. Small moves in SPX can produce outsized percentage gains or losses (Source).
Here's how I manage that risk:
- The 4x stop-loss is non-negotiable — every trade has a predefined maximum loss
- Position sizing: I never risk more than a small percentage of my account on any single day's trades
- No averaging down: If a position moves against me, I close it. I never add to a losing 0DTE trade
- Avoid major news events: On Fed days, CPI reports, or major earnings, I either widen my strikes significantly or sit out entirely
- SPX only: I don't trade 0DTE on illiquid underlyings. SPX has the volume and tight spreads needed for consistent execution
0DTE Track Record & Performance
Since August 2023, I have had only 4 - 5 losing trades on 1DTE — all on the call side.
This is not because the strategy is riskless. It's because the combination of selling OTM options (with high probability of expiring worthless) and enforcing a strict 4x stop-loss creates a mathematical edge that compounds over time.
The key word is discipline. The strategy only works if you follow the rules every single time.
0DTE Options Volume & Market Growth (2025–2026)
0DTE trading has grown from a niche strategy to a dominant force in the U.S. options market:
- 2025 was the sixth consecutive record year for U.S. listed options. Total options volume topped 15.2 billion contracts in 2025, 26% above 2024 (Source)
- Zero days to expiry (0DTE) options in SPX averaged 2.3 million contracts daily, or 59% of the total product volume (Source)
- 0DTE accounted for 24.1% of overall U.S. listed options volume in 2025, up from 21.5% in 2024, and almost double the 2022 share (Source)
- Increased retail participation is one of the reasons for the growth in 0DTE trading. Retail broker flows account for 50% of total options volume (Source)
This explosive growth means better liquidity, tighter spreads, and more opportunity for systematic premium sellers.
For more data, see the Cboe 0DTE trading resources and Cboe's 2025 State of the Options Industry report.
Common 0DTE Mistakes to Avoid
Through teaching over 2,500 students, I've seen the same mistakes repeatedly. Avoid these:
- Trading too large: The most common killer. Just because 0DTE options are "cheap" doesn't mean you should trade big size. One adverse move can wipe out weeks of gains.
- Ignoring stop losses: "It'll come back" is the most expensive sentence in trading. If your stop is hit, exit immediately. The 4x rule exists for a reason.
- Trading illiquid underlyings: Stick to SPX. Other products may have 0DTE expirations available but lack the volume for reliable fills at fair prices.
- Trading during major news events without adjusting: Fed announcements, CPI data, and major earnings can create violent intraday moves. Either widen your strikes significantly or don't trade that day.
- Treating 0DTE like gambling: This is not a lottery ticket strategy. It's a systematic, probability-based approach. If you find yourself "hoping" or "guessing," you're doing it wrong.
The Ultimate Combo: 0DTE Income + The "Financed Bull"
While selling 1DTE and 0DTE strangles provides excellent short-term premium collection, it requires active monitoring and is purely an income strategy — it doesn't build long-term wealth on its own.
To build long-term, sustainable wealth, I recommend pairing 0DTE/1DTE income with the "Financed Bull" Strategy. By buying call debit spreads and financing them with naked puts on fundamentally strong companies, you capture massive upside potential for "free" without staring at intraday charts.
Think of it this way:
- 0DTE/1DTE = your paycheck (consistent daily/weekly income)
- Financed Bull = your investment portfolio (long-term wealth building)
Together, they form a complete trading system. Learn the full approach in our guide to the most successful options trading strategies, and explore the most profitable options strategy for more details.
Stop Gambling. Start Winning.
Learn the "Financed Bull" Strategy and the 0DTE/1DTE income approach that has produced a win rate up to 98%. Protect your capital. Collect premium. Participate in the upside.
FAQ — 0DTE Options Trading
0DTE stands for "Zero Days to Expiration." These are options contracts that expire at the end of the same trading day they are traded. They offer extremely rapid time decay, making them attractive for premium sellers with strict risk management.
Is 0DTE options trading profitable?
Yes, when done systematically. Selling out-of-the-money strangles on SPX with a strict 4x stop-loss has proven effective. Since August 2023, I have had only 3 losing trades on 1DTE, all on the call side. Consistency and discipline are the keys.
What is the best 0DTE strategy?
Selling out-of-the-money strangles on SPX index options with a defined 4x stop-loss. For additional consistency, trade 1DTE to capture overnight theta decay. Pair this with the Financed Bull Strategy for long-term wealth building.
What is the difference between 0DTE and 1DTE?
0DTE options expire the same day. 1DTE options expire the next trading day. 1DTE allows for overnight theta decay and slightly less intense monitoring, which is why I prefer it as my primary short-dated approach.
Are 0DTE options risky?
Yes, they carry significant risk due to rapid price movement and high gamma exposure. This is why a strict stop-loss (4x the premium collected) and conservative position sizing are essential. Never risk more than you can afford to lose on any single trade.
Do 0DTE SPX options qualify for Section 1256 tax treatment?
Yes. SPX options are European-style index options that qualify for Section 1256 tax treatment, meaning gains are taxed at 60% long-term and 40% short-term capital gains rates regardless of how long you held the position. This can significantly reduce your tax bill compared to trading SPY or individual stock options.
Why trade SPX instead of SPY for 0DTE?
SPX offers three major advantages: (1) Section 1256 tax treatment (60/40 split), (2) European-style settlement (no early assignment risk), and (3) cash settlement (no physical delivery). SPY options do not receive any of these benefits.
Explore all of our options trading strategies.