Zeroing In on an Options Trading Strategy: 0DTE
There's a strategy for trading options that's generating quite a bit of buzz: trading an option contract with zero days to expiration (0DTE). An online search will generate many results with information about this trading strategy, which has become more common recently as expirations in certain options have expanded to practically every day of the week. Though the topic is hot, selling and buying options with zero days to expiration can be risky.
Before engaging in 0DTE options trading, it's critical to fully understand the essentials of options. Options are financial instruments that convey to the purchaser (the option holder) the right, but not the obligation, to buy or sell a set quantity or dollar value of a particular asset at a fixed price (known as the strike or exercise price) by a set date (known as the expiration date).
Options generally come with different risks depending on many factors, including, among others, how they're traded, how they're settled and the underlying asset. These risks may be amplified if an investor writes uncovered options (meaning the investor sells a call or put option without having a position in the underlying security). For example, uncovered call writers (sellers) face the risk of unlimited potential loss if the market for the underlying security rises sharply.
Source Fool.com
