Managing Zero-Days: Why 25% Profit Targets May Work Best

Here is a chronological list of distinct topics, claims, and statements from the transcript:

1. A market study for 2025 analyzes which zero DTE strategies performed well during a year of high volatility, wider intraday ranges, and challenging price action. The research focuses on iron condors, put spreads, and various trading approaches using year-long data.
2. This specific study is a grand summary for 2025, concentrating on zero DTE iron condors. The analysis uses a frequently adopted strategy: a 20 delta, $20 wide iron condor, managed with a 25% profit target and no stop-loss.
3. Research indicates that the 20 delta, $20 wide, 25% profit target, no stop-loss strategy is an optimal use of capital for zero DTE options. This specific management style is considered one of the best and a very balanced approach among 20 different combinations tested with all available data.
4. In 2025, market performance included a major swing in April, with volatility rising significantly from early February for over 2.5 months, peaking above 60. The first and second quarters were highly volatile, followed by the market smoothly grinding higher for the rest of the year.
5. The market demonstrated a "V-bottom" pattern in 2025, which was an unexpected and notable movement. This indicates a sharp decline followed by a rapid recovery.
6. For zero DTE traders, intraday price changes and ranges are of paramount importance, while overnight market movements are largely irrelevant. Overnight gaps do not impact zero DTE trades, unlike futures or equity trading.
7. A key benefit of zero DTE trading is the absence of overnight risk, as all positions are settled within the same day. The effective trading range for most zero DTE trades typically occurs within the first 2.5 to 3 hours of the 6.5-hour trading period.
8. A comparison of intraday trading ranges and VIX levels in 2025 against 5-year and 10-year averages shows that the 5-year average (post-COVID) is higher in all volatility categories. 2025 volatility levels were consistent with the 10-year average but lower than the 5-year average.
9. For zero DTE trades in 2025, there was an observed upward tilt in market movement. The market touched the upside more often (43%) than the downside (38%), with slightly wider ranges to the upside compared to previous years.
10. The market's upward bias in 2025, with approximately 75-80% of the year (post-April) being generally positive, would likely influence neutral or bullish strategies. This overall market context is crucial for understanding strategy performance.
11. The study compared a 20 delta, $20 wide iron condor (25% profit target, no stop-loss) to a 30 delta put spread with wider wings. Both strategies collected a similar average premium (around $53 for iron condor, $50 for put spread) in 2025.
12. Although iron condors and put spreads had almost identical historical long-term performance, the iron condor significantly outperformed in 2025. It surpassed its long-term average in most categories, including average P&L, CR, and average return on capital, with largest downside losses being lower than the long-term average.
13. Put spread strategies are characterized by wider P&L volatility and larger potential losses, necessitating a larger account size to manage the variance. For smaller to medium-sized accounts or more conservative traders, the iron condor is a more suitable strategy.
14. Using a $20 wide put spread would likely result in insufficient premium collection. This would lead to a poor risk-reward ratio, making it an unfavorable choice for premium-seeking strategies.
15. While the put spread was profitable in 2025, its performance was only in line with or slightly worse than its long-term average. The iron condor, however, performed exceptionally, with its average P&L more than double the long-term average, partly due to fewer small losses compared to put spreads.
16. A key insight is that zero DTE trading results can diverge significantly from general market experiences. Strategy selection should be based on individual account type and assets, acknowledging the distinct dynamics of zero DTE options.
17. There is a very weak, almost zero correlation between SPY price movements and zero DTE P&L. This suggests that the overall market direction may not strongly influence the profitability of zero DTE strategies within their short trading window.
18. Trading zero DTE options is fundamentally a bet on the underlying mathematical model and implied volatility. The strategy involves selling options just outside the expected move, based on the belief that implied volatility is often overstated.
19. Iron condors performed better in 2025 partly because the market often swung back and forth intraday, even with a general upward tilt and frequent touching of the call side. These intraday reversals provided ample opportunities to manage for 25% profit targets.
20. In 2025, iron condors achieved their 25% profit target an average of 7 minutes faster than usual. In contrast, put spreads took approximately 11 minutes longer to reach their target, indicating higher efficiency for iron condors in yielding P&L and closing positions.
21. Zero DTE options differ from longer-dated options due to their binary nature and instant, larger losses. Unlike longer-term strategies where losses can be managed by rolling, zero DTE losses are realized immediately and must be recovered through subsequent trades.
22. Long-term market assumptions, such as a bullish outlook over several months, are not applicable to zero DTE trading. Traders must adjust their assumptions to the short, intraday duration, as even multi-day market declines require immediate action.
23. In 2025, iron condor losses were 11% smaller, while put spread losses were 8% larger. A significant portion (58%) of the put spread losses occurred over 15 consecutive trading days from February to March due to large, unrecovered downside moves.
24. The average P&L for zero DTE strategies in 2025 exceeded the long-term average, with only February being a losing month (compared to five losing months historically). February's losses coincided with rising volatility from low levels.
25. Despite large market swings in April, zero DTE strategies remained profitable on average, which was unexpected. The monthly success rate in 2025 was consistently tight (82-91%), a direct result of managing positions for a 25% profit target.
26. Managing positions at a 25% profit target is an effective strategy to mitigate the impact of market swings on P&L, thereby contributing to more stable performance.
27. In 2025, zero DTE strategies demonstrated strong downside management, with CVAR (Conditional Value at Risk) outperforming long-term averages every month. December, a relatively mild month, showed larger drawdowns for zero DTE positions than April, partly because lower average volatility in December made single-day volatility increases more destructive.
28. Average volatility in 2025 was mixed, close to the long-term average, but large intraday swings (especially in March and April) were beneficial for zero DTE traders. These swings facilitated profit-taking within 1-2.5 hours as long as the underlying returned to range, helping maintain overall high volatility levels throughout the year.
29. June was the best month in 2025 across all categories for zero DTE strategies, with May also showing strong performance. This indicates that traders should continue trading even after challenging months like April, as traditional market adages like "sell in May and go away" do not apply.
30. It is psychologically difficult for traders to persist with a strategy after initial losses, despite historical data suggesting that periods like May and June can be highly profitable for zero DTE. High volatility combined with normal trading ranges in these months allowed for significant profits within the first couple of hours.
31. Overall, 2025 was a great year for zero DTE trading due to elevated market volatility, resulting in higher credit, strong returns, and well-controlled large losses. Iron condors significantly outperformed put spreads, and taking small profits at 25% consistently proved superior to 50% for iron condors. Zero DTE performance often differs from general market experiences, showing low correlation with large swings or high volatility.