Zero Day Index options vs weekly stock options.

Submitted by BeautifulPerception t3_yhvz1n in wallstreetbets

I tried posting this on r/options but no answers, there's just not enough degeneracy over there.

Here's a situation I'm trying to wrap my head around.

Purely for day trading purposes, when there is no intention of holding overnight, we're often presented with a situation where we can choose to trade Index / Index ETFs options or options on a particular stock we expect a higher percentage move from. There might be relative strength we can play off of in individual issues, but strategically, how do we best balance that vs the dramatic convexity possible with zero days?

I was faced with this choice last week trading SPY options or NFLX and feel like this is a topic where I could improve my understanding, and therefore, my results.

I think this must have to do with the size and probability of the expected move, but that's going to interact with the options pricing. I know this has to do with the convexity and gamma, but I'm trying to get my head around that in a way that's useful for real time day trading (NOT scalping).

I'd love to know your thoughts.

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MyNi_NotYourNi t1_iug02z1 wrote

Remember, the house always wins.

For 0DTE, their enforcers - theta and charm - are particularly effective.

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VisualMod t1_iufy3d2 wrote

>The answer to your question depends on a number of factors, including the expected move of the underlying security, the time until expiration, and the options' strike prices.

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BeautifulPerception OP t1_iufynup wrote

If you're comparing possible positions like I described, what does your mental process look like?

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Desert_Haze_ t1_iugsvw5 wrote

I do like quick scalps, mostly less than 5 minutes, for which I prefer SPY/SPX 0dtes. After I enter I wait for quick moves in my direction, if not I generally get out quick. You have to extremely cautious trading 0dtes regularly. You will lose and you have to accept it and cut your loser well.

On Thursday and friday I also trade weekly options for some stocks which are either showing strength compared to the market or weakness.

If you want to hold your options for more than 10 minutes, I'll advise against trading 0dtes. In that case, I will suggest 1dte SPY options or weekly stock options.

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ScrotyMcboogrb4lls t1_iuhna2q wrote

Depends, the more theta there is on the contract the smaller the move will be compared to the stock's move.

If you are not intending to hold overnight at all, 0DTE will always pay more, if you choose right.

Because if you bet the wrong direction on a 0DTE the value will plummet as well and you are either tossing them at a loss or ride them to dust.

Playing 0DTE is very tricky and requires skill with timing.

You can easily make +50% in a couple of minutes on a 0DTE SPX play, but you can just as easily lose 50% in a couple of minutes.

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>TL;DR: do you always trade options on the underlying index when you're only trading for the day and you expect a move, or do you balance that with single stock selection?

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Cultist6661 t1_iug0iul wrote

Why do so many ppl option SPY and SPX and all these weird indexes? It’s way easier to hit on individual stocks.

Or at least pick a sector and pick a few companies from that sector and just do your play like that.

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Desert_Haze_ t1_iugt30b wrote

For judging the strength and weakness of individual stocks, you have to look at indexes and how they are doing. Otherwise you are just blindly trading. If you have to look at indexes anyway, it's easier to trade 0dtes of them which are highly liquid. And indexes move fast as well and the option premiums move fast. So, for daytrading these index options are very good.

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Cultist6661 t1_iuhag7d wrote

Good point I was just kinda tryin to say u can make ur own index.

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jesse950 t1_iuizew0 wrote

From what I can see most of the individual stocks I follow mirror the movements of Spy anyway but with greater volatility. Options liquidity can also be an issue. So if you're trading more than a handful of options you could face order fill issues.

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