0 DTE SPX Options: Not What You Think

0 DTE SPX Options: Not What You Think They Are!

These options have become very popular, especially in the retail trading space. Therein lies the paradox. These options are essentially exotic options that trade-off pure probability, not Vol & Greeks. If I had to pigeon-hole them, I’d call them a Cash-or-Nothing European Digital. As such, the only real way to value them is to calculate their N(d2). In the context of option pricing, "N(d2)" represents the risk-neutral probability that an option will expire in-the-money (ITM), meaning the underlying price at expiration will be above the strike price.

Since these options have a 6.5-hour lifespan, you must trade them as bet options. Now, in my case, I do run a contextual screen to determine the current trading environment (vol-compression vs. vol-amplification) in order to utilize the appropriate forward distribution of daily returns. My distribution is not “risk-neutral; therein lies my edge in trading these things.

It’s not surprising that the brokerage firms & the exchanges are marketing these things to the retail crowd. It’s a cash cow. If you’re going to trade them, forget about Vol & Greeks.

It’s a bet market!

At “The Delta House”, we teach people how to view these in the proper context and how to use them to exploit intraday moves 😉