Market volatility has reached levels reminiscent of the COVID-19 pandemic, but zero-day to expiration (0DTE) options continue to demonstrate market efficiency, according to Henry Schwartz, Vice President of Derivatives Market Intelligence at Cboe.
During a recent Benzinga webinar, Schwartz highlighted that while current market conditions are unprecedented, options markets remain fundamentally consistent. Traders have two primary 0DTE strategies: directional market bets and spread trading. The key to success lies in understanding individual trading goals and risk tolerance.
Schwartz recommends traders carefully consider their objectives before executing 0DTE options trades. Critical questions include identifying profit targets, assessing risk tolerance, and determining portfolio allocation. Consistency emerges as a crucial factor in successful short-term options trading.
0DTE options offer significant advantages, including high liquidity, potentially lower premiums, and daily trading opportunities. These instruments enable traders to capitalize on short-term price movements and respond quickly to market events.
However, Schwartz cautions against assuming perfect market conditions. Drawing from the COVID-19 pandemic as an example, he emphasizes the importance of adaptability and realistic expectations in options trading.
While 0DTE options provide flexible investment tools, traders must recognize the inherent risks. Understanding potential profit and loss scenarios remains critical for making informed financial decisions in this dynamic market environment.
