Market Measures

Capital Efficiency For Zero DTE Positions

| Mar 30, 2023
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    Market Measures

    Capital Efficiency For Zero DTE Positions

    Mar 30, 2023

    Today's market measure focused on zero days to expiration (DT) options and their capital efficiency. The team noted their preference for defined risk trades in zero DT options, as they are more capital efficient than undefined risk trades. They compared the capital usage of 25 delta strangles and iron condors at zero DT and 45 days to expiration and found a significant difference in capital requirements due to fixed prices. They concluded that zero DT options were more capital efficient when defining risk and examining capital requirements across different situations.


    The team found that buying cheap out-of-the-money wings saved money without giving up much and recommended allocating fewer contracts with wider strikes to optimize capital efficiency in zero DT and longer-term options. The cost savings were highlighted by a 25 delta strangle in SPI costing approximately $7,763 for one strangle, while an iron condor cost around $122, representing a reduction in capital usage of 98%. They compared 25-delta short iron condors with long wings and found that zero DT options demonstrated much lower capital requirements against longer-term options.


    While zero DT options are cost-effective, the team cautioned that they tend to be binary, meaning they cannot be managed or adjusted late in the day. Longer-dated options, on the other hand, offer more flexibility in managing positions. In summary, the article recommended utilizing zero DT options for defined risk trades with a focus on capital efficiency, while longer-dated options offer more flexibility in position management.


    The article is focused on trading, particularly on the capital efficiency of zero DT options. It explores the cost savings of defined risk trades in zero DT options and highlights the importance of examining capital requirements across different situations. The team recommends allocating fewer contracts with wider strikes to optimize capital efficiency while cautioning that zero DT options tend to be binary and cannot be managed or adjusted late in the day. Overall, the article provides valuable insights into the cost-savings and flexibility of zero DT and longer-dated options for traders.

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