Options with zero days till expiry, or 0DTE options for short, are option contracts that expire on the same day they are traded. When an option reaches this point in its life cycle, there is little time remaining to exercise the right to purchase or sell the underlying asset. Since the window of opportunity is limited, the trader has to make his or her move as quickly as possible.

In recent years, 0DTE options trading has become more prominent and is a popular approach for premium collection and traders trying to take advantage of short term volatility.

How Do Options With Zero Days to Expiration (0DTE) Operate?

An option is a contract that gives the buyer the right, but not the obligation, to purchase or sell an underlying asset at a given price within a defined time. This right does not include the obligation to do so. Every options contract has a termination date in its terms. If the choice has not been made by that time, it will expire either in the money or out of the money.

Options with 0 days left before expiration indicate today's expiry date. The number 0 in front of DTE signifies that this is the final day the option may be used. While dealing with options, a trader often has a decent amount of time to wait and watch to see whether the underlying asset moves in the direction that's favorable to the option trader. Nevertheless, this is different with 0DTEs. At this late hour, time is of the utmost importance.

Some option traders consider the final day before an option's expiration date the optimal time to invest in options. Traders may utilize 0DTE options because it may allow them to potentially capitalize on short term volatility while only locking up cash for brief periods. Keep in mind that opening new options positions close to or on their expiration date comes with substantial risk of losses for reasons that include potential volatility of the underlying security and limited time to expiration.

0DTE options and theta decay

Depending on how far away the date to expiration (DTE) is, the theta decay of an options contract may be negligible, while there are still weeks or months to go before it expires.

When a trader opens a position by purchasing 0DTE options, the trader's position will have a high percentage of theta decay, which means that time is operating against the trader's position. If the underlying asset does not considerably shift in the direction of the trader's favor before the position expires, the trader's position may expire out of the money, which means it will be worthless.

For option sellers, theta decaying is now operating to the trader's benefit if a trader sells 0DTE options to initiate a position, such as a credit spread. If a trader finds themselves in one of these situations, time is working in their favor, and the likelihood of making a profit is increased—so long as the transaction does not shift against them.

Are Options with Zero Days to Expiration (0DTE) Profitable to Trade?

Selling and purchasing options with 0 days till expiry might result in sizable profits or losses. At this late point, there is a lot at risk, there could be a lot of short term volatility in just one day.

There is a variety of differing opinions on this sort of investing plan. Because of the many accounts of individuals losing money, 0DTE choices have been compared to playing the lottery. When you purchase an option on the final trading day before it expires, there is much pressure for the move that you anticipate to occur as quickly as possible. Experienced investors with a high level of confidence may use 0DTE options, and these trades should be hedged appropriately just in case things do not go as planned.

What exactly does DTE mean in options?

DTE is an abbreviation for "days to expiry," which informs us how many more days we can purchase or sell an underlying asset at a predetermined price. After the allotted time, the options expires either in the money or out of the money.

When do 0DTE options expire?

A 0DTE indicates that the option will expire on the same day it was purchased.

What are the consequences of the option not being exercised before it expires?

Option purchasers are not obligated to exercise the contract if it expires out of the money. The option is said to have expired and is no longer available if the deadline for taking action has passed. In this scenario, the buyer would be left with nothing and would be out whatever money was given to the writer (the premium) for the opportunity provided to them. If a put option expires in the money, it means that the strike price is higher than that of the underlying security, the holder of the contract will lose money. Oppositely, when a call option expires in the money, its strike price is lower than the price for the underlying security, the holder of the contract will get potential profits.

Options trading entails significant risk and is not appropriate for all customers. It is important that investors read Characteristics and Risks of Standardized Options before engaging in any options trading strategies. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period of time. Certain complex options strategies carry additional risk, including the potential for losses that may exceed the original investment amount. Supporting documentation for any claims, if applicable, will be furnished upon request.Moomoo does not guarantee favorable investment outcomes. The past performance of a security or financial product does not guarantee future results or returns. Customers should consider their investment objectives and risks carefully before investing in options. Because of the importance of tax considerations to all options transactions, the customer considering options should consult their tax advisor as to how taxes affect the outcome of each options strategy.