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The Essential Guide to Trading Zero DTE Options (During the Last Hour)

By:Anton Kulikov

To maximize returns in the last hour of trading, learn how zero DTE options behave in the last hour of the day.

  • Zero DTE options carry the greatest risk-return of any option cycle, but timing the last hour moves can lead to very fast returns.
  • Buying Zero DTE options in the last few hours of the trading day is better than buying earlier in the day. That's because a $1 move in the late afternoon is worth 156% in the right direction.
  • Zero DTE options are riskier than other options, and it is more difficult to sell them late in the day. So, it is advisable to cover or reduce size by noon if selling premium.
  • Buying zero DTE options after noon makes sense if traders want to take shots in the market.
  • Have a regular trading strategy and be aware that trading securities, futures products and options involves risk and could result in a loss greater than the original investment.

The fundamental tradeoff: Trading options in the last hour of the day

Zero days to expiration options—also known as zero DTE options—expire on the same day they are bought. Their highest risk-return comes with trading them in the last hour.

The tastylive research team conducted a study that revealed purchasing zero DTE options in the waning hours of the trading day offers a staggering 156% return if the stock in question ($SPY) moves in the trader's desired direction. On the flip side, risk escalate significantly as the same zero DTE options inch closer to expiration.

Hence, it's advisable to cover or reduce position size by midday if you're selling premium. However, if you're in the market for buying zero DTE options, making your move post-noon makes sense because although you could lose very quickly, the loss is defined to the amount of premium paid, and no further losses can occur.

The statistics and alternatives

The Market Measures presented on tastylive walk through the research team's findings and provide invaluable advice on the optimal time to dive into the market and the significance of a consistent trading strategy. They underscore the fact that trading zero DTE options is not for the risk averse, and anyone who wants to trade them should be involved in the day-to-day trading regardless of what the market is doing.

For context, consider a single $1 move in the price of $SPY, the SPDR S&P 500 ETF. A $1 move happens around 50% of the time on any given day. If you were trading a zero DTE option and that $1 move happened shortly after the market open, the long option position would profit by 12%—not bad. But let's say that you put the same trade on at 2 p.m. Central time, one hour before the market close, and then SPY moved by $1. That long option position would profit by 156%. Conversely, if SPY failed to move at least $1 in the last hour, the option position would lose 100% in one hour. So, it is a tradeoff for sure.

Anton Kulikov has a decade of trading experience. He leads research content creation at tastylive and appears on more than 20 live shows including Futures Power Hour, Options Jive and Research Specials LIVE . He co-authored bestselling investment strategy book Unlucky Investor’s Guide to Options Trading, and has contributed research content for Luckbox Magazine 

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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