0DTE Options Strategy: Guidelines for Successful Trading
At SPX Option Trader, we implement a comprehensive 0DTE options strategy for trading SPX and SPY weekly options. We apply our specific guidelines in our daily trading, and they can also help enhance your own trading strategies.
Entry Strategy
We provide a limit price for the option we plan to trade in the Daily Outlook. This limit price is the maximum we are willing to pay, but we typically aim to enter at a lower price. Entry is usually made after 9:35 a.m. EST, allowing market volatility to settle. If the option is trading below our limit price, we proceed with the trade.
However, if the market is moving rapidly in our forecasted direction, we may enter before 9:35 a.m. to secure a favorable price. If the market moves in the opposite direction, we often delay entry until it turns, using a 1-minute chart to assess market direction. If the option exceeds our limit price by 9:35 a.m., we will wait for it to come back down. If it doesn’t by 10:00 a.m., or if it moves too far, we skip the trade. For more details about entry time, be sure and see this article.
Exit Strategy
Once we enter a trade, we calculate our % profit targets and stop loss levels based on the actual entry price and the levels shared on our website. For example, if we enter an option at $1.00 with a 100% profit target, our target exit price is $2.00. If we have a 60% stop, our stop will be at .40 on the option. We use these guidelines to monitor the trade throughout the day.
We use the 3 target levels provided in the Daily Outlook, along with profit and stop loss percentages, to make exit decisions. Once key levels are hit, we often employ a trailing stop to protect profits. When a target level is broken, it typically acts as a new support or resistance point, guiding our exit strategy.
Our rule of thumb is never to let a trade that’s nearing its profit target turn into a loss. Once a % profit target is hit, we move our stop loss to break even, or tighter, to lock in gains.
Order Placement
We do not use Stop Limit or Stop Market orders. Instead, we watch the market and only place an order when we’re ready to exit the trade. This approach helps avoid poor fills due to the large bid-ask spread in SPX weekly options. We suggest avoiding pre-placed stop limit orders and manually exiting at a price between the bid and ask when your stop level is reached.
No Trade Days
There are days when we believe it’s best not to trade due to high option prices or risky market conditions. A successful trader knows when to sit out. We also avoid trading on half days or during abbreviated trading weeks, as forecasting becomes more challenging. We inform our members on days we choose to avoid trading.
For in-depth examples and daily insights, visit our SPX Trader’s Blog. There, we review each day’s trading activity and provide valuable insights on how we apply our 0DTE options strategy for trading SPX and SPY weekly options.
Now that you’ve reviewed these general guidelines, be sure to read our specific trading guidelines for more details. If you have any questions, feel free to contact us.