Day Trading 0DTE Options

0DTE, short for "zero days to expiration," option contracts expire on the same day they are opened. 0DTE options are opened and closed in the same trading session.

The Financial Industry Regulatory Authority (FINRA) defines a “day trade” as any trade opened and closed on the same day. So, by default, all 0DTE trades are day trades.

For example, if you buy an SPX call option Tuesday morning and then sell it before the end of the day on Tuesday, it is a day trade.

However, one exception to day trading is that option positions do not have to be closed. Trades left to expire at the end of the day will not count as a day trade. If an option expires in-the-money, the broker will automatically exercise it and assign it to a seller at random. Out-of-the-money options will expire worthless. Make sure you know the difference between trading SPY vs SPX.

Pattern Day Trader rule & 0DTE

Traders need to be aware of day trading PDT rules. The PDT rule was introduced in 2001 by the Securities and Exchange Commission (SEC) and states that investors who make four or more day trades in a five-day period are considered pattern day traders and must maintain a minimum account balance of $25,000.

Once a fourth day trade is made in a 5-day window, your broker will flag the account as pattern day trading for 90 calendar days, and trading will be restricted for 90 days or until the account balance is above $25,000.

If day trading while marked as a pattern day trader and below the $25,000 minimum requirement, you will be issued a day trade violation and be restricted to closing trades only.

0DTE day trading strategies

Many traders are drawn to 0DTE option strategies because they provide many opportunities to trade the market on a daily basis. Most option strategies can be traded with zero days to expiration. For example, the Opening Range Breakout (ORB) strategy is very popular with 0DTE traders.

Optimal 0DTE option strategies are those that effectively balance risk and reward while leveraging historical price action to inform decision-making. 

Probability research highlights that commonly-used metrics for short-term options trades, specifically 0DTE strategies, tend to be less accurate than longer-dated positions.

Traders can instead use options backtesting to view historical price action to identify accurate results and combine them with favorable reward-to-risk ratios to enter trades with positive expected value.