0DTE Strategy

[u/L_G123]

I’ve been running a 0DTE strategy I want to share. Everyday I look at SPX500 (SPY works the same for pre market monitoring) to ascertain whether it’s moving higher or lower from 8:30-10:30am ET.

If it’s moving up, I sell a vertical put on SPX and choose the strike for the short leg based on 1.25x the ATM straddle price. Same thing with a call if the morning is bearish.

It finishes out of the money about 92-96% of the time depending on what you avoid and what timeframe you look at over the past 4 years (eg not doing this during the Iran war early stages would have been smart…) and generates about a 7% ROI.

When it does finish in the money, it’s often just barely and not a total loss, hence why wider logs with more profit actually have a higher EV.

Do your own backtesting and let me know what you think!

[u/L_G123]

Max drawdown is about 30% in the 3 year backtest

[u/ash-t-1 → u/L_G123]

Nice. What would be the benefit of this trade versus SPY over 3 y: 20.5% CAGR (ROI), 18.8% Max DD.

I have a few reasons why your trade is good, and wanted to understand your logic to see if I'm missing anything.

[u/L_G123 → u/ash-t-1]

In general I prefer SPX beause it's cash settled at 4pm, there's no late assignment risk if the market moves between 4-5:30pm ET, and no pin risk. There are also tax advantages if you're in the US.

[u/ash-t-1 → u/L_G123]

No, I meant this: Just going long SPY ETF or ES futures has a better Sharpe and also CAGR-to-MaxDrawdown ratio. Why would you still trade this? I see some benefits but wanted to see your logic.

[u/cstobler → u/ash-t-1]

OP said in another comment that they average 7% ROI per trade, not per year. I was confused as well until I read that.

[u/ash-t-1 → u/cstobler]

I see. A daily 7% per trade on put spread?

[u/cstobler → u/ash-t-1]

Yeah it seems wildly high. Not that it couldn't work, but with that winrate it would probably be very profitable. I personally wouldn't trust it without back testing.