Before we get into the 4 steps, or stages of the 0-DTE trade, lets refer to the 4 steps as the “Trade” and also note that there are 5 such trades each week. And at the end of each week (Sunday at 9PM EDT), we meet in an interactive video meeting, called the Retrospective, where we discuss the trades and ask these 3 questions…
- What did we do right?
- What did we do wrong?
- What can we improve upon for next week?
At the beginning of each week, starting on Sunday evening, we start the week of trading, and prepare for the first of 5 weekly trades. At this point we make sure we understand what is confronting us on the economic scene, and incorporate any changes or updates to our strategies and methods that we discovered in the Retrospective meeting.
We trade options on the S&P. Specifically options on the E-mini S&P futures contract, and options on the SPX index. We start with the futures, because it trades around the clock and contains volume information, which is critical to our trade analysis. Also, we can take a trade outside market hours with options on the E-mini.
As of the current time options on the SPX can only be traded during NYSE stock market hours. This will change on November 21st 2021, when the CBOE will open trading on options for both the SPX and VIX indexes, to roughly match the same trading hours as options on futures.
Trades can be taken at anytime prior to expiration at 4 PM on expiration day, but in general they are taken one of 3 times, either in the evening (typically 9 PM to 10:30 PM) prior to the expiration day, or the morning before the NYSE stock market opens but after most economic reports have been released (typically between 8:30 AM and 9:30 AM), and the 3rd time is right around noon time (typically between 11 AM and 1 PM).
The 4 Step Process
There are 4 distinct steps to every trade, and 3 trades every week (Monday, Wednesday and Friday). This is because the options we trade expire on these 3 days. If there is a market holiday on Monday, then the contract expires on Tuesday. If there is a market holiday on Friday then the trade expires on Thursday.
We start on Sunday evening, as already previously stated. Here are the 4 steps to the process (each individual trade):
- Analysis of potential market catalysts.
- Development of the market structure using Volume Profile.
- Execution of an asymmetric options position that models the results of steps 1 & 2
- Manage profits prior to expiration.
Please note that management of risk was never mentioned. This is because the asymmetric position has risk management built in, so that we concentrate on how to extract the maximum profit from the trade, or accept the max risk that was defined in step 3.
The following modules will describe these 4 steps.