Beginner’s Guide to 0DTE Options

A 0DTE (Zero Days to Expiration) option is an options contract that expires on the same day it is traded.

In past times, options were usually traded with expiration times going from weeks to months, but now 0DTE options commonly account for well over 60% of the total SPX options volume, signaling a major shift from a niche product into a retail-driven force that dictates intraday price action.

How 0DTE Options Work

As the name suggests, an option becomes a 0DTE option on its final trading day. 

Most major index products will now list options expiring every trading day, so you can open positions with only hours left until settlement.

To better understand why this option type is so alluring to traders, you have to know that option prices are dictated by two key components, called intrinsic value and extrinsic value.

Intrinsic value tells you how much your option is already in the money, while extrinsic value represents the premium paid for the possibility of future price movement.

On the day that each option contract expires, its extrinsic value collapses, due to Theta, or time decay.

A 0DTE option has little to no time left for uncertainty to resolve. If it’s out of the money, the market assigns it minimal value. If it’s in the money, pricing closely tracks the underlying asset itself.

This is why 0DTE contracts feel binary. Either price moves now, or the option decays toward zero.

Why 0DTEs Dominate the Market

With the majority of day trading in the US now going through 0DTE options, we can no longer call this approach as just retail gambling, but instead a complete shift in how institutions hedge.

At the center of 0DTE dominance is the gamma feedback loop, a self-reinforcing process driven by dealer hedging requirements, as market makers are mandated to remain delta  neutral and to hedge their exposure to price movements. 

In cases when traders aggressively buy 0DTE options, even small price changes can affect the dealer’s net Delta due to the extremely high Gamma that these options contracts carry. Dealers therefore have to offset the risk in real time, thus creating the gamma feedback loop.

To remain neutral, dealers hedge by buying or selling index futures or the underlying asset itself.

That hedging activity doesn’t happen in isolation. When dealers buy futures to hedge call exposure, their buying pressure pushes the index higher. 

As the index moves, the Gamma of those options increases further, forcing additional hedging. Price movement begets more hedging, which begets more price movement.

This feedback loop works in both directions. On downside moves, put buying forces dealers to sell futures, accelerating declines just as quickly.

The Two Greeks That Rule 0DTE Trading

While 0DTEs are by nature extremely risky to trade, to have at least a better chance of success, you have to have a better understanding of the relationship between Gamma and Theta.

In simpler terms, think of Gamma as the engine that drives 0DTE profits, while Theta represents the friction that ensures most contracts expire worthless.

Popular 0DTE Strategies

In addition to the basics, you should also consider a few strategic approaches to 0DTE options trading, as long-term success commonly depends on defined-risk spreads.

Short Iron Condors

With this strategy, you turn Theta decay into a profit source, rather than the main threat it usually is with these options contracts. 

The short iron condors approach is based around selling both a Bear Call Spread and a Bull Put Spread, betting that the S&P 500 will stay within a specified range for the rest of the trading day.

Many traders wait until after the market digests its initial volatility before opening positions, reducing the chance of an early breakout that can pressure the spreads.

The Volatility Straddle

This strategy is most-commonly deployed during major economic events, like Fed rate announcements or Consumer Price Index releases. These high-impact events are naturally huge drivers of volatility, and you can use them in 0DTE options trading by buying both a call and a put, betting on a massive move in either direction.

The risk with this strategy is called the Implied Volatility Crush, where the move happens but isn’t large enough to offset the high premium you paid by betting on both calls and puts.

Successful straddle traders focus on speed and exits. Profits are often taken within minutes, not hours, once one leg expands enough to offset losses on the other.

The "Lotto"

The “lotto” strategy involves buying very cheap, far out-of-the-money 0DTE options in hopes of catching a sudden, outsized move.

This is the most dangerous and simplest approach to 0DTEs, and is popular due to potentially extreme upside, with limited capital investment, but the chance of success is extremely low.

Professionals who use this approach treat it as a statistical bet, not a strategy to build consistency. 

Position sizes are kept deliberately small, losses are accepted without adjustment, and wins are taken quickly.

The Regulatory Reality

Now that you’ve understood the basics and trading strategies, it is also crucial to be aware of the regulatory framework that governs day trading in the US.

The rules not only affect how many trades you can do in a single trading day, but also shape other things, most importantly shape position sizing and strategy selection.

In today’s legal framework, the Pattern Day Trader (PDT) rule remains one of the most important constraints for retail traders operating in ultra-short timeframes.

The $25,000 PDT Threshold

Under FINRA regulations, any margin account with less than $25,000 in equity is limited to three day trades within a rolling five-business-day period. 

If you exceed this government-mandated limit, your account will be classified as a pattern day trader account, triggering trading restrictions until you meet the equity requirement.

0DTE options are by their nature highly affected by this rule, as they are designed to be opened and closed within the same session, which can quickly exhaust the number of available day trades you have.

For example, a single iron condor opened and closed counts as one day trade. A few adjustments or partial exits can consume the allowance faster than most traders expect.

The majority of retail traders therefore have regulation as their primary limiting factor.

The Cash Account Workaround

To avoid PDT restrictions, many 0DTE traders use cash accounts instead of margin accounts. Cash accounts are not subject to PDT rules, allowing you to place multiple same-day trades without having to worry about the limit.

There is a trade-off to the cash approach, however, and it is based around settlement. Options trades must fully settle on a T+1 basis, meaning capital used in a trade cannot be reused until the following trading day. 

This forces stricter capital allocation and limits how many positions can be opened in a single session.

While some view this as a disadvantage, others often treat settlement friction as a built-in risk management tool. It naturally limits impulsive re-entry and prevents rapid compounding of losses during volatile sessions. 

Summary: Trading or Gambling?

0DTE options have revolutionized the market by compressing its cycle from weeks and months into mere minutes. 

These contracts offer you institutional-grade leverage, but also require a level of discipline and strategy that most traders sadly lack.

Simply parse through the Wallstreetbets subreddit or watch some of the compilations on YouTube that discuss the life-shattering losses that 0DTE options traders have suffered and you’ll understand the dangers of the rampant gambling approach to this type of trading before you even think of stepping into this all-or-nothing, high-risk world.