The Out of The Money (OTM) Zero Days To Expiration (0DTE) butterfly may be the perfect strategy. It has asymmetric risk to reward, and incredible profit making potential with very little risk. The only tiny little caveat is that you have to have both the price and timing correct. Or, do you?
The best time to put on a premium collection strategy is just after volatility has peaked, and it’s on the way down. Why is that? That’s because the elevated volatility will allow you to buy a cheap butterfly with wider wings, and that provides 3 things. Great range of prices where you can be right, smaller risk and greater profit making potential. There is a 4th thing, and that’s after you placed the trade, with volatility dropping, the rate at which premium is decaying has increased. It’s the perfect storm, but in a good way. Maybe the perfect rainbow would be a better description?
The great thing about the butterfly is that it is a premium collection strategy, it is extremely flexible, it is easy to create an asymmetric trading opportunity, and it is perfect for short term trading, like that in a 0DTE situation.