THE FENTANYL OF TRADING
When it comes to trading options, there are a lot of different strategies and approaches that you can take. But for newer or less experienced traders, there are a few things you need to be aware of - especially when it comes to zero day to expiration (0DTE) trades.
- 0DTE ARE SUPER HIGH RISK
First and foremost, it’s important to understand that 0DTE trades can be incredibly risky.
When you’re dealing with options that are about to expire, the value of those options can swing wildly based on even small movements in the underlying asset.
This means that if you’re not careful, you could end up losing a lot of money very quickly.
- HOW TO MITIGATE THE RISK OF 0DTE
One way to mitigate that risk is to consider playing options with further expiration dates.
While 0DTE trades can be tempting because they offer the potential for quick profits, the reality is that they can also lead to quick losses.
By playing options with further expiration dates, you give yourself more time for the underlying asset to move in your favor - which can increase your chances of success.
- ITM vs OTM OPTIONS
Another important thing to keep in mind is the risk reward of out-of-the-money (OTM) options versus in- the-money (ITM) or at-the-money (ATM) options.
While OTM options can be cheaper to buy, they also come with a much higher level of risk.
If the underlying asset doesn’t move in your favor, you could lose your entire investment. ITM or ATM options, on the other hand, may be more expensive, but they also offer a higher probability of success - which can make them a safer choice for newer traders.
Ultimately, the key takeaway here is that new traders need to be careful when it comes to 0DTE options.
While they can be a tempting way to try and make a quick profit, they also come with a lot of risk. By considering longer-dated options and focusing on ITM or ATM options, you can reduce that risk and give yourself a better chance of success.
Remember - trading options is all about balancing risk and reward, and by being smart and strategic, you can improve your odds of coming out on top.