As a dedicated options trader and recently converted 0DTE fanatic, I’m always looking for some sort of mathematical edge. Recently, our team researched SPX historical prices to help traders pinpoint opportunities where the market "pegs" within a certain range from different times throughout the trading day. Let's dive into the specifics and explore how this Peg data might help improve the confidence of your 0DTE SPX strategies.
What does intraday SPX Peg data tell us?
The Peg research analyzes minute-level SPX data historically to determine how often the market closes within a specific range of its marked price at different times of the day. Each data point in the table below displays the percentage of time the SPX closed within the defined range (0.10%, 0.20%, 0.30%, 0.40%, or 0.50% OTM) after the price marked by the time during the trading day.
For example, our data shows that 65.6% of the time, the SPX closes within 0.20% of its 2 PM price in the last 180 trading days. It also shows that 53.3% of the time, the SPX closes within 0.30% of its 10:30 AM price in the last 180 trading days. If we graph this dataset we visually see the contraction of OTM percentages for each group as the trading day progresses. Notably, prices that are 0.20% or more OTM tend to more quickly accelerate their OTM percentages towards the end of the trading session.
These insights are very powerful for options traders, particularly those focusing on 0DTE strategies, as it gives us yet another unique data point that might guide our decision-making for new positions. Additionally, using the 0DTE Oracle, we can backtest these setups to see how similar positions would have performed. Here's an SPX iron condor enter each day at 1 PM that is at least 0.30% OTM for the last year.
How am I using Peg for 0DTE trading?
Personally, I’m utilizing the Peg Indicator in a few different ways:
- Identify High-Probability Entries: I’ve said for years and years that great entries save you from having to be good at adjustments and hedging. Therefore, I’m always looking to optimize trade entry. Peg helps me do this by identifying specific times during the trading day when the SPX is more likely to "peg" within a narrow range by the market close. For example, the data shows that there's a 56.1% chance the SPX will close within 0.20% of its 1:30 PM price; I can set up a bot to look for positions after 1:30 PM that are at least 0.20% OTM with a risk/reward ratio higher than 100%. Statistically, this would be a great entry with favorable metrics.
- Optimize Risk/Reward Ratios: As alluded to above, with a targeted entry window and stats around Peg percentage ranges, I can optimize the minimum required risk/reward ratio I’m willing to accept on a position before entering it. Again, for example, I should NEVER enter a position at 0.10% OTM with a 50% risk/reward ratio, because I know I’ll never collect enough premium to cover my risk. Instead, a 50% risk/reward trade mandates at least a 67% win rate, which means I need to enter positions at 0.20% OTM after 1:30 PM or 0.40% OTM after 11 AM as these ranges offer great Peg percentages above 67%.
- Help Exiting Trades: Though my focus will certainly be on trade entry, there’s no denying that Peg could also help with decision-making regarding which trades to exit or hold as we near the market close each day. If my profit zone for a position is 0.30% OTM from the current market price and it’s late in the trading day, it’s unlikely that the market will move that far, so I might close my position and capture any premium left in the position before it wastes away.
Avoid the urge to pick up pennies
The old trading adage, “Don’t pick up pennies in front of a steamroller…” certainly applies to this Peg data. If you’re anything like me, I instinctively looked at the high percentage numbers for 0.40% and 0.50% OTM, thinking there’s a tradable opportunity here to collect small premiums with ultra-high probabilities of success. And while tempting for sure, after a few days of monitoring the pricing on these types of setups, it seems these pennies should remain on the ground and not touched.
For example, this SPX short put spread was captured just after 1:30 PM. At that time, it was more than 0.50% OTM, which the Peg data suggests there’s a 90.6% chance the SPX stays inside the 0.50% range until the end of the trading day. On its face, it looks very attractive; you’ve got a better than 90% chance of collecting an “easy profit” of $247.
However, if you think about the risk involved in this trade ($2,253), you are also setting yourself up to get run over and suffer a huge drawdown if you find yourself trading in the unlucky 10% of the time that the market moves outside the 0.50% range. Which, to be fair, is likely to happen sooner rather than later, given that 1 out of every 10 trades on average will move beyond 0.50% by the end of the trading day.
Want to create a bot to automatically trade Peg data?
Jack recently shared a video on automating a 0DTE strategy where he went step by step through instructions on creating a bot to trade this new research. We encourage you to take a few minutes to watch it and see how you might be able to incorporate this research into your own 0DTE strategy.
The Peg research adds another valuable tool to our trading toolkit, providing a robust, data-driven approach to 0DTE SPX options trading. By incorporating this indicator into your strategies and leveraging our platform's automation capabilities, we hope you feel more confident with setting up targeted bots to accomplish your goals.
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