Raw Transcript: 0DTE Options Trading Strategy: Profit Targets, Win Rate & Risk

Do you think holding your zero-day trades to expiration captures the most profit? Our 2-year long back test says otherwise. We're breaking down exactly why taking 10 to 20% profit might be the only way to avoid tail risk in these fastmoving markets. Uh so this is the best of. Again, this is our part two of our zero day uh best of series. So we're talking through some of the zero day content um that we've put on this year. So turning zero day profit targets or tuning zerodt profit targets. This one from June 12th of 2025. I thought I was correcting a mistake. I was actually just not reading right. >> I do it all the time. >> Oh god. It's giving me the wamp wamp. Next slide here. Um, so in a fastmoving high-risk zerodt trades, fine-tuning our approach can meaningfully impact performance. This study examines how different aggressive profit targets affect the outcomes. The study here uh is a zero-day trade. Obviously, we did this at 9:00 a.m., which is 30 minutes after the open uh plus or - 5 minutes. each day. The strategies 20 point wide iron condors using 40 and 20 20 delta strikes, $10 $10 wide iron flies. So very tight iron flies and then iron condors with 40 and 20 delta shorts. Winners closed very aggressively, 10, 20, and 25% of the max profit. Losers, we let those run um through the end of the day. So u we'll go take a look at uh the stats that we've got here. So the iron fly uh you see obviously a lot of these are centered around a 5050 probability with with more aggressive management, right? So when you're taking the quick profits, which is what we've been doing with RSPX trades, we didn't end up doing one today. I kind of forgot about it. There was it was a little bit of a fast market today. It wasn't >> forgot about it, too. But you've been scalping nice with your with your NASDAQ and your and your ESPs, too. >> Yes. So, um, but just overall, you know, these the quick management has been good for us and and obviously through all these, you know, your mean P&L is pretty good. Um, uh, besides the no management aspect, which just opens you up to a lot of tail risk. We've seen this time and time again with all these studies. you know, no management on a two-sided trade with, you know, hours to go until expiration, you're going to have these big, you know, deviations of returns. Here with an iron fly, there's only so much you can lose. And so your CVAR is basically the same across the board. But you end up the reason the no management is so low win rate and P&L but has the same CR is because you're basically realizing the max loss on all of those because you have no management there. And so, you know, that's really the key here is that by managing early, you're reducing your variance of uh and your your deviation of P&L and tightening that up and so you end up having, you know, more consistent positions over overall. >> Mhm. >> What do you think about the the targets here? What is your go-to? I mean, we've been doing 10 15 20% is kind of our wheelhouse. It's right in this in this range, 10 to 20%. And but it's not it's not our core trait. You know, this isn't >> it it's kind of an engagement, >> right? >> And when and when it does work uh for you, we've been able to do it in, you know, 10 minutes to 30 minutes. And when it doesn't work, it usually takes about two hours or so to get back into that range, at least from our experience of us doing it. and we've been doing it sparingly. Um again, volatility is extremely low. Um the the the optimal times when volatility is high. >> Yes. >> Next question, please. Next uh slide, please. >> So, looking here at 40 delta iron condors, we're doing $20 wings. Uh again, we're looking at um the win rates, the mean P&Ls. You can see again as you get into no management or more aggressive management, if you're looking at 75% or 80% or 90%, they probably all fit in that no management bucket. Uh you have a lot of max losses and so your mean P&L is going to skew against you and that's just the nature of the beast here. Um, you know, it's a an interesting time to be talking about these because of the Captain Condor situation, but you know, this is what happens. This is why you have to manage trades. >> Correct. This is why you have to manage trades. You can't just set it and forget it. Looks good on paper. And this is why, and you went back to Captain Condor again, which I can't stand that name, but that's what everybody knows him as. Uh, the martingale of two four, you know, becomes eight. 8 becomes 16, 16 becomes 32. and so on. So on it goes against everything we talk about with size. You cannot increase your size to that magnitude, especially in such a short period of time, especially on such a big product. >> Yeah. It's just I mean >> it's silly. >> It's silly. Yes. Exactly. >> I mean it sounds silly. Like how many times would you go to a a roulette table and you know bet black? You know, you think you know it's it's going to come out red eventually. Yeah, it will. But you're gonna run out of cash before it happens, you know. Or you could run out of cash before it happens. >> Yeah. >> Don't even get me started on the green one. >> Yeah. Now there's like triple zeros. >> Are there really? >> And some I've seen some some casinos do triple zeros now. >> Wow. >> Yeah. >> They've been out of touch. >> Yeah. You got to you got you know the casino needs a little bit more edge. >> Of course. Of course. Of course. Of course. >> Couple takeaways here. Um so over the last year uh the last two years selling zero day XBX premium has been highly profitable particularly for traders who secure profits quickly. I mean th this is there there's obviously you know you watch these trades and you're like oh I should have held that I would have made 100%. Or I would have made 75%. The the there's always a gimme and a gotcha and you see it in in all of our sides of like no management you're going to have wider distributions. you're going to hit that tail more frequently and you're going to have those events where you know multiple tails occur in a row and that is that is why you need to manage trades. It's not about the pro leaving profits on the table. It's about minimizing the tail losses. That's the key to all these management um segments. You know, no no single profit target emerged as uni universally best. I mean, there's a g again there's a gimme and a gotcha. You know, more a a lower profit target like a 10% is going to be a tighter deviation of P&L. When you get to the no management, that's kind of the the the you know extreme end of of the the curve. 10 20 30%. They're all kind of justifiable and you can do it on a day-to-day basis if you want to. But the key here is that doing something is is optimal. Um, a 10% target produces the highest win rates and the strongest per performance. Uh, it was 90% of the traders in it trades into wins. For Iron Flies, accepting a lower win rate to capture more credit led to better overall results. And that's just because the nominal amount you can lose is so much lower with those iron flies. And so, you know, if you're doing out of the money stuff, you should be a little bit more aggressive with your management. And if you're doing at the money stuff, you know, you just don't have it's an all or nothing type trade. >> Yes, it is an all or nothing type trade. You're 100% correct. >> Unfortunately, that's just the way it is. >> Yeah, that was a good one. So, the next one we have is the impatient bulls selling zero DT put spreads. This was in October. >> My wife says I'm impatient. Are you impatient? >> Um, no. No. I'm pretty patient. I are you. Yeah, I think I got I got good patience. Yeah. >> Okay. All right. >> Still a bull. >> Okay, fair enough. >> I'm not that age yet, you know. >> All right. All right. Fair enough. >> As the markets continue to rally, traders may wonder what happens when we take a directional stance. The se the this section analyzes how different approaches to selling daily zerodt S&P put spreads have performed. So the study is we sold one put spread daily using the at the money short strikes compared multiple long strike widths every time we were tested um uh or I'm sorry entry times tested where the market opened within 5 minutes and 9:00 a.m. So we did this at two times and trades were closed at either 10 or 25% of the max profit. So these are going to be much meteor spreads because you're selling right at the money. It's the last two years, so it's been significantly skewed bullish. Um, and so the, you know, this data, you have to, you know, you have to keep that in mind here. >> Very good. >> So, opening at the open, closing at 25% of the max profit. You can see your win rates across the board very, very high. Higher than you would expect. You'd expect these to be like 60 or 70% because you're selling an at the money spread. So you're going to be a little bit better than 50% but you're not going to be 80% on these. And you know because the win rate is high it's telling you that your market has generally gone up. You're you do increase that win rate by managing in some fashion. So that's going to increase it as well. But again, you know, for a lot of the last two years it's been pretty much up and so you see that reflected here. >> Yeah, definitely see affected here. I mean, but you know, you can't tell what the market you can't tell the market what it's done, right? I mean, you can only do it what's here and now. >> Of course, >> look at what's here now. >> Of course. Um, so here we're looking at 9:00 a.m. Um, so the 9:00 a.m. 25% profits basically the same thing that we've looked at before. Um uh you know the there's there's really no meaning you know the everybody asked for like what's the perfect time to put the trade on that what everybody's looking for and there is no perfect time right I mean there could be a bad time and we found that after 12:00 seems to be a then it's noon central seems to be a not as advantageous time as putting it on earlier. >> Yes. Yes. Um, but you know there is there there's no perfect entry. There's no perfect delta. There's no perfect, you know, there's no like this is the one trade. They're they're all priced for whatever the risk is on those trades. And and you know, you >> hyperfocusing on the best entry is less important than understanding the management and understanding the risk. Like that's where that's where you should be focusing on. It's less about the perfect spot. And so you can see across the board here, the numbers are basically the same. Whether you entered at uh 9:00 a.m., which is 30 minutes after the open, or right at the open, it's basically the same numbers here. >> Very good. >> So during the study period, S&P rose from 3,800 to 6600. So you had obviously an upside move. And this kind of goes with you know any small data set you have to you know and any back test in general you have to take it with a grain of salt because you know the market did what it did you're look it's everything that you're you're studying is a you know in hindsight and it's not necessarily to continue the same way or same magnitude into the future. So you know that's good context but we have to just you know kind of pump the brakes. I think that's kind of what we're saying here. Higher profit targets captured more total P&L but they increased exposure but increased the exposure to larger draw downs. This is across the board like if you are targeting more profits you are going to have more risk like that is just the nature of anything like more risk more reward. It's a very very easy thing to understand and and that plays out here. this study being, you know, on the last two years skews the the market skewed bullish. And so, you know, this looks like the free money glitch. Of course, we know that there's, you know, there's risk to that. Um, the main takeaway here, there was no meaningful difference between entering trades at the market open versus, you know, 9:00 a.m. There it's it's one and the same.