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

2025 was a year like no other. Higher volatility, wider intraday ranges, and price action that put zero DTE strategies to the test. In this market measures study, we break down which strategies held up and which did not. We analyze iron condors, put spreads, and various trading approaches using year-long data. This is the research that helps traders understand and build an edge. This piece is slightly different from uh a couple of piece before. This is not about weekly. Uh this is actually a grand summary for 2025. Uh focusing on the iron condor cuz we there's so many strategies we can only focus on >> of zero day options >> of the zero day fees. Yeah. And also I choose one of the uh uh the the strategy that you guys use the most often which is uh 20 delta $20 Y manage 25% profit target with no stop-loss. >> Yeah. that that's not in a box, but that's in our broad base. That's how we do it. From our research, it shows to be the optimal use of capital, the optimal trade to make on the zero days, at least >> since time since we've been looking at this across time, but now you're going to go in depth in it and see if that statement is actually right. >> Yeah, we can expand the study uh into different management style of delta, but for 20 delta, $20 wide, >> it's actually pretty decent. >> Okay. And also there among among 20 different combinations uh different levels of management different levels of stop losses uh 25% and no slot loss is actually one of the best scenarios it's a very balanced strategy overall for the last year and therefore all the data available. >> Okay. Okay. All right. Let's do it. >> Cool. >> So what's going on in 2025? Uh definitely uh we need to review the market performance first, right? how the underlying perform and how the VIX and the VIX 1D uh change over time. This is this is pretty much what happened from January 1st to all the way to the end of the year. We had a huge uh swing in between in April but actually the volatility start to uh start to climbing at the beginning of February. So we actually have more than 2 and 1/2 months volatility uh rising from the low uh low point of the year before and all the way up to 60 whatever plus in the April. So it's pretty volatile especially in the first uh first and second quarter. Uh but after that we didn't expect that markets smooth uh grinding higher like gradually over the rest of the year. >> Yeah. Okie dokie. >> Which was crazy. >> Has been crazy. >> Yeah. Vbottom. >> Yeah, >> that's a typical the Vbottom. >> Yes. >> So, next slide. Now, we want to more importantly rather than look at the BR market, we want to take a look at the intraday change, the range, the percentage that matters most uh to zero DT uh traders because over nine moves doesn't matter to the zero DTS, right? If the if the S&P open 1% higher, >> we don't care. But for the future traders or the equity traders, that probably going to impact your P&L, but not zero DTS. >> Yeah. And I I think that's a huge draw to zero DTS trading too because everything settles in that day. There's no overnight risk. There's no binary risks. There's no Venezuela. There's no tweets. Like it's it's over at the end of the day. And so, you know, having it be cash settled as well as kind of done with at the end of the day is a added benefit to this trade I think is like a positive thing to this trade. >> Yeah. There's only a 6 and 1/2 hour trading period for zero DT and most of the trades you probably going to exit before 3 hours. Yeah. >> So, the real trading range is probably two two and a half to three hours. Yeah. Most most. So, this is the intraday trading range and and also put the VIX level on the uh uh next to it. This is the comparison of 2025 uh um 10 years average and also five years average. Uh why I want to separate five and 10 years because 10 years uh long-term everything slightly lower volatility implied volatility trading range is slightly lower. uh but in the past five years since the beginning of the covid everything start to elevate trading range uh vicks it actually increased the everything >> from long-term average remember between 2012 and 2019 >> market was pretty dead >> right for premium sellers >> so now we can see the 5-year average is pretty much higher in all category including the VIX and realized volatility um 10 year's average is the lowest. So last year is kind of consistent with the long-term like a 10 years average but definitely lower than five year average. >> So one thing we want to point out uh that's pretty important for zero DT trades uh from last year is uh look at the arrow. So the the upside we have more number of currencies touching the uh upside and the range is slightly wider to the upside from last year. So you can see the 43% to the upside and only 38% to the downside. That's a little bit tilted to the upside compared to the other years. >> Yeah. >> So this leads to the question, does that actually impact the neutral or bullish strategy? >> Okay. I mean, I would think it does, but it's a reflection of the market after April. It was pretty much >> Oh, that's right. Yeah. >> All up. So you had you know like when you look at this stat it it it >> you have to take the context of the market 80% of the year was generally up besides the first like you know like maybe >> two months from February to uh April. >> Yeah. February to Aprilish you know. So yeah 75% something like that. >> Mhm. Yeah. So let's take a look at the real performance. So next slides we we show the uh 2025 and all the data available for zero DT performs only. On the left side we have the 2020 iron condor manage a 25% uh profit target without a stop loss. On the right side I want to compare this is the only place we compare the iron condor versus a bullish strategy. uh 30 delta um because we need to push up the delta a little bit closer to the strikes for push spread and we make the wings a little bit wider so we can get uh a little bit richer premium close to the iron condor. So in this case last year the average premium we collect for this iron condor is $53 and the put spread is very close uh $5 or so. So these two strategy can collect same premium almost on average and the performance is very different. So long-term the iron condor is 4.8 8 and the long-term footprint 4. It's 4.8. It's almost identical for historical long-term, but the performance is much better on the iron condor size in 2025. It's way better. So, it outperformed long-term in every category that you can imagine. Average P&L wing rate, well, wing rate is kind of similar. CR is one of the best last year for some reason. Even including those huge swings, the largest downside loss is actually way lower than the the long-term average. Not way lower, but it's decent lower. >> Yeah. >> And the average return on capital is much higher. Volatility is decent controlled. >> So when you look at these, what what what's your takeaway from from this? So I mean obvious uh other than >> well I think from the most important part is your your sear and just the the width of your return volatility. So like having wider you know like bigger losses and wider ranges of P&L um is generally a a harder thing to do over and over again. So just doing the put side is a little bit more um you got to have a bigger account size to do that because you're going to have everything's going to be wider. Your losses are going to be bigger. Your P&L volatility to the up and down side is going to be wider. So I if you're >> in a small to mediumsiz account, you've got to kind of do the iron condor is really what this tells me. is like that's or if you're more conservative with this trade like this is kind of a a a piece of your portfolio, not like your main thing. I think you go towards the iron condor versus the put side. I think you got to have a larger size account. You got to be kind of um in this for the long term to withstand the variance there. >> Exactly. So we we definitely can use $20 wide put spread, but you're probably not going to get enough premium. >> So that's one of the reasons. And you still risk the same for the same with width of >> closer. Yeah, it's closer at half the money though. The risk the max >> you have to you have to or you don't you don't get anything. The riskreward ratio probably not going to be that good if you getting too close, right? The premium is too cheap. >> But overall, it's still profitable for put spread, but the performance is kind of in line with the long-term average or slightly worse uh worse than the long-term average. Pretty much we can say the same. Yeah, Iron Condor for some reason uh performed extremely well. Look at the average PM is a is a is more than double the long-term average. I didn't expect that. I thought it's going to be more swing to the upside and also downside have some huge hits, right, for the iron condor. I can't >> you're probably getting >> because some of the because of where the put spread is relative to the iron condor, it's a 10 delt, you know, 10 delta difference. you're probably getting a lot of um like uh small wins, small losses in the put spread where the market kind of goes down a little bit and test the put spread where the put spread you might be losing like you know 50 cents on or whatever and and the iron condor is expiring worthless cuz it's a $20 and like you have less um kind of like uh scratches with the iron condor. the iron condor probably wins or does win a lot of the trades where the put spread is a scratch or a small loser or small winner. It's just not a as big of a you know win. >> Yeah. So the key point of this slide is not to tell you to choose put spreads or iron condor. You can definitely trade based on what what kind of account type and assets you have. Uh but what I tried to point here is that what you what you have uh the results from zero DT probably is going to be very different from what you experience from the market in general. >> Mhm. >> Right. We feel like we iron condors probably testing upside a lot more. So you probably can't you will lose more money but actually probably not happen for that six and a half hours. It's probably different. Yeah. >> The correlation interestingly uh I can show you in the future spy price versus zero DT is very close to zero. almost non-correlated. Very very weak correlated. Wow. >> P&L wise. Yeah. So >> that means you don't need to care about the market for trading zero DT like a >> You're right. You're you're betting on the math model, >> right? >> That's really what you're that's really what you're betting on. And if you're not trading V, you're not trading right. You're trading >> well you're trading V which is how the options are priced but you're saying that those prices are fair and accurate and that's the range that we're going to be in. >> You're saying it's overstated. >> Well, you're saying it's overstated, right? Because you're you're going to just outside the expected move. Yes. Yes. Yeah. >> Yeah. Okay. So, next one. Uh this is pro uh some of the reasons why the iron condors uh uh why the iron condors did better uh than put spread last year although this is probably not going to be true for every year but it can help us understand what happened if you're zero DT traders last year. So one reason is even though we have more upside moves uh and we have definitely touching the call side more often than put side but most positions is the markets actually swing back and forth. you definitely have enough time to manage 25% winners. If the market start to pull back a little bit um like later in the day and the premium, you can definitely get that premium. >> And uh so and also the uh the iron condor last year hits the profit target slightly faster than average. It's small like a 7 minutes sooner sure and average hitting that 25%. Uh but the push spread actually took 11 or whatever minutes longer. So you look at the both sides, iron condo probably perform better. You can have higher premium premium uh P&L and you can close that position faster. So your efficiency is much higher. >> Yeah. >> And kind of putting to bed a little bit again how you have to do both sides opposed to one side being directional. You kind of cherrypicked there by just saying the put spread didn't um and we went higher and if you just did a put spread. Is that what you're saying? >> It's Yes. Probably different from like a selling 45day DTE if you're bullish in the market over the long term. Sure. >> Zero DT can perform slightly different. >> Sure. Because it's a it's a binary event and the losses are bigger than are a lot bigger lot bigger >> and they're they're instant like you don't >> you know you you sell puts and the market goes down and you and you roll those puts and the market goes back up. You make that money back. >> Whereas these it's settled. So, it's like that you're realizing that loss and now you got to make that up with consecutive trades as opposed to one trade where you can roll that and continue with it and you roll that loss forward and if the market does rebound, you get that loss back via that same size position. You're you're you're adding every single trade here. >> Exactly. So you probably need to adjust your assumption duration to the zero DT. If you're bullish the market in the market for next months or or next 3 months that doesn't apply to zero DT it can keeps going down for 3 days. >> Uh you probably have to roll again. Yeah. >> So some interesting stats to contribute attribute uh to these results that iron condor losses in uh 2025 is 11% smaller and the put spread is 8% larger. And why uh the push spread uh loss is larger is um last year we have some large downside move >> that never even came back up. So actually touching your your bottom uh hurt the put much more than the iron condors. So from February to March we have 15 consecutive trading days that cost you uh 58% of the losses for the put spread. So that 15 days. So if we lose 10, >> how do we avoid those days? >> You got to have uh Yeah. As long That's where the crystal ball comes. >> Keep trading. >> Yeah. >> Keep trading. >> Yeah. So which means if you lost uh 10 grand uh for the downside in uh for the put spread in the last year, uh $5,800 from that 15 days, >> which is huge. >> It is huge. >> Yeah. >> Yep. >> All right. Look at the other uh uh charts. Uh the first one's average P&L. Now we break down into months so you can have a better understand how the P&L changes over the year over the uh past 12 12 months. Uh interestingly last year still outperform uh long-term average uh in the in the in the over the long term we have five months that actually below zero uh for average P&L but last year we only have one month which is not March which not April and May is actually February. Why is February is when the volat start rising from the low to like a medium level, >> right? So what you >> with the surprise >> what you pointed out right there was the market kind of bellge out on those big down moves in a in March and April, right? Or the zero days, the volatility was so high that the the moves that we were getting were still outside expected move. Remember we're talking about zero days now. We're not talking about longer term. So in February, January into February as volatility was contracting and then started to expand off its lows similar what we have right now, right? So like you got to kind of >> uh >> we jump from 13 uh right before Christmas all the way to 16.5 in these days. So you got to be careful, >> right? >> Perfect. That's what I wanted to point out. Good job. >> So April you you did lose on those big swing days, but on average you still make money. That's pretty surprising. You probably had more losers in March and April >> in February and March than February and March. Yeah, >> that's uh that's interesting. Uh then we look at the success rate win rate for each months. Next slide. This result for the success rate is actually pretty consistent. This is very interesting. So the the range is somewhere between 82 to 90% 91% is is pretty tight. One of the reason is that we manage a 25% uh profit. uh if we change that profit or we don't manage that this swing is actually much wider. >> Yeah. The Yeah. You're you're probably more towards a you know 75 >> 75 to 95. It it really depends on whatever the market does. >> Yeah. >> So if you want to reduce the uh market swing impact on your P&L, you want to manage your position. 25 is actually is a is a good good entry point. >> Makes total sense. >> Yeah. >> Yeah. >> So next one is now we're going to talk about volatility. Um a lot of people want to know where the risk are. So this is the CVAR uh CVAR uh 2025 had really good uh large downside management. So it actually beats uh long-term averaging every single month. So that's one of the reasons why most of strategies can perform pretty well last year. >> You didn't expect that from >> you didn't expect that. And you know it's not going to always be like that. >> That's right. That's You know, you got to have that. You got to >> we had kind of the perfect storm going into I mean all of 2025 really for this type of strategy. >> Yes. See this chart is very different from the underlying or VIX chart, right? When the peaks uh happen in the April, this one look at the December. December actually has for zero DT positions actually has much larger draw downs because the average volatility was lower. Mhm. >> One like a one day increasing volatility can destroy your P&L. April is almost the same as December. >> Mhm. >> Yeah. Yeah. You're right. And December you would say was pretty um tame in comparison. >> Pretty pretty mild, right? >> Yeah. >> So the uh the last uh charts, bar charts, we want to talk we want to look at the uh average volatility. So average volatility uh is kind of mixed. So this is very close to average. We sometimes we're higher than the average, sometimes we're lower. So nothing uh special and we see the uh we see some months we see the large swing including uh uh March and and uh April especially the April that's actually not a negative thing for zero D traders because we need intraday swing for after one an hour or two and a half hours as long as the underlying came into the range you can take the profit off >> and it probably helped cuz it kept all relatively high the rest of the year, >> right? >> I I mean like we have we we we don't have a data set yet for zero day trading where the VIX is at 16 the entire year. >> Right. I mean like all all the data sets have, you know, a VIX range of 16 to 30, >> right? >> Right. In the last like four or five years, we've had like a >> Right. Right. >> 25 Vicks at some point. >> Oh, Exactly. Exactly. you know, like we never >> rarely exceeds 30 rarely. >> But we haven't had that persistent blow vow pick. So that'll be the interesting one if we get that this year. >> And just some side effects last year. Uh June was the best months from every category. May was great too. So that points out if you lose a lot of money in April or you have bad experience, you trust the numbers, keep trading. That probably >> one of the harder things to do because >> you don't want to sell in May and go away. You want to keep going, right? You want to keep going in May. That's right. If you're zero day, the sell in May and go away doesn't apply to you. >> It's easy to to make money for 2 3 months. Have a have a a draw down of a of some number. >> I give up >> and give up. >> I cannot test this. >> But if you lose money out of the shoot and then you say, "Don't worry about it. This is the best time to continue going on." Hardest thing in the world to do. We usually lose >> May and June. best time because the volatility was so high but trading range is just back to normal. >> Yeah. >> You you made tons of money in the first hour or two. >> Yeah. Yeah. >> Yeah. So summary uh last slide uh definitely a lot of things happened last year. Uh it elevated market volatility but it it overall it was a great year for zero DT tradings >> uh because the credit is higher return is strong large losses is well controlled. uh put spread is profitable was profitable last year but was not as great as the neutral strate if you don't have a strong market opinion keep trading iron condors I don't see any potential problem in there uh in in movement is larger uh tail risk estate tail risk is is meaningful uh especially for late day moves that contributes to a lot of success uh for our strategies uh definitely small profit taking is very important we compare so many times between 25 and 50% winners ers for iron condors 25% beats 50% all the time. All the time. >> Yeah. >> And and the last one is contrary to what we experience in the market zero DT performance can be very different if you experience large swings in crazy volatilities is probably not going to be 100% correlated with your zeroD performance. >> It can be profitable or whatever. Welcome to Market Measures airing every weekday morning on Tasty Live. Tasty Live's research team breaks down how strategies behave in real time market environments. We dig into market data, pressure test ideas, and translate complex market behavior into insights you can apply to your trades. Stay tuned. Our research may change how you think about risk, market structure, and trading opportunities.