In-depth Breakdown of Options Product Functionality
Top 0DTE Options by Volume: exploring expiring options
Ⅰ. What are 0DTE options?
Generally, 0DTE (zero days to expiration) options are option contracts that expire at the end of the current trading day. Top 0DTE options by Volume on moomoo includes zero days to expiration options and other short-dated options expiring within the week.
Each options contract has a set expiration date, which may be on a quarterly, monthly, weekly basis, or in some cases for certain underlying assets, there can be multiple expiration dates within a single week.
Most options tracking U.S. stocks usually expire on Fridays.
For index options or related ETF options that track an index, exchanges provide services with contracts expiring every day.
Please keep in mind that opening new options positions close to or on their expiration date comes with substantial risk of losses for reasons that include potential volatility of the underlying security, limited time to expiration, flagging as a pattern day trader, and others. This type of strategy is not suitable for all investors and should be utilized only by sophisticated investors who understand the essentials of options and the risks of expiring options.
Quickly find Top 0DTE Options by Volume on Futubull
Futu offers a list of "Top 0DTE Options by Volume", where you can find all option contracts that will expire within the current week.
Additionally, you can quickly filter option contracts by combining various option analysis indicators such as IV, IV rank, option volume, and more.
Step: Markets> Options> Top 0DTE Options by Volume> Tap the Call or Put to enter the detailed quotes page> Select filters to find options you want
Ⅱ. Characteristics of expiring options
A. High leverage effect
Expiring options exhibit high leverage, which means there is potential to capitalize quickly from short-term price movements, even with a small investment.
Let's understand its impact with some examples:
Case 1:
Consider a TSLA call option with a strike price of $273.33 expiring on September 15, 2023.
On September 10, this option had an intrinsic value of zero and almost no time value left;
but on September 11, as Tesla's stock price rose by 10%, the price of the option surged by 1457.50%, illustrating the substantial profit potential that high leverage can offer.
Case 2:
Take another example with AMD on July 8, 2024. AMD rosjumpe slightlyd from yesterday's closing price of $171.90 to $178.69, an increase of 3.95%.
Meanwhile, a 0DTEn option expiring that same week soared from yesterday's closing price of $0.79 to a closing price of $1.93, a single-day gain of 144.30%.
In contrast, an option expiring in 24 days rose from $5.20 to $8.25, an increase of 58.65%; an option expiring in 101 days went from $12.95 to $16.40, a modest gain of 26.64%.
Expiring options have high leverage for two main reasons:
1. Low capital requirement
The capital required to trade option expiring (the option premium) is relatively low.
An option's value consists of intrinsic value and time value.
Generally, the closer to expiration, the faster the time value of the option decays.
Expiring options are like supermarket items nearing their sell-by date, with time value approaching zero and thus lower premium prices, providing higher leverage.
As shown in the chart below, for NVDA options with a strike price of $130, the call expiring on July 12 (3 days to expiration) has a premium of $1.84.
The call expiring on July 19 (10 days to expiration) has a premium of $3.50, and the call expiring on October 18 (101 days to expiration) has a premium of $13.95.
2. Extreme sensitivity to gamma:
Close-to-expiration options are extremely sensitive to Gamma, which measures how a one-unit change in the stock price will affect the change in Delta by one unit.
Gamma can be seen as Delta's acceleration; the larger the Gamma, the faster the potential for profit.
Close to expiration, especially at-the-money options, have a large potential for Gamma increase, which can theoretically tend towards infinity.
This means that even minor fluctuations in the underlying asset's price can cause rapid changes in the option's Delta, leading to significant fluctuations in option value and further amplifying the leverage effect.
Important risk considerations: It's important to note that 0DTE and close-to-expirationg options also have a high Vega, meaning that even small changes in implied volatility can significantly impact the option's value. This high volatility and sensitivity increase market uncertainty, making the final value of the option more difficult to forecast. Combined with the high leverage characteristic of expiring options, this may amplify potential losses in market conditions unfavorable to the investor.
B. High Liquidity
Expiring options are increasingly favored by investors looking to capitalize on short-term market volatility.
Since 2016, the trading volume of these options has been on the rise, accounting for up to half of trades in some popular U.S. stock options and reaching as high as 68% in SPX index option trades.
The appeal of expiring options lies in their high leverage and relatively low entry cost, making them attractive for investors seeking returns during short-term market swings.
This has led to strong liquidity, high trading volumes, and tight bid-ask spreads.
High liquidity is driven by many active traders, leading to plenty of buy and sell orders.
This activity narrows the bid-ask spread, making it easier for investors to enter and exit the market at prices close to the stock's market value.
Additionally, the quick turnaround of such options is appealing to those who prefer not to hold positions for extended periods.
Investors can take very short-term positions and employ hedging strategies, with outcomes known within days, offering faster feedback compared to longer-dated options.
Important considerations: As expiration nears, particularly for deep in-the-money or deep out-of-the-money options, liquidity may decrease. This can pose challenges when closing positions or hedging, thus increasing liquidity risk. This can result in wider bid-ask prices, reduced trading volumes and increased slippage.
Ⅲ. Trading strategies for expiring options
Futu provides a variety of trading strategies to accommodate different market conditions.
You can select the strategy that suits your trading needs. Below, we will introduce three commonly used strategies in expiring options trading.
For exploring more strategies, click "View Strategy Details" to learn about the functionality and application methods of each strategy in detail.
Note: Options trading subject to eligibility requirements. Strategies available will depend on options level approved. Step: Options Chain>bootcamp.
A. Single Option Strategies
There are four fundamental strategies in options, which can be chosen based on your market outlook for appropriate single-leg trades.
Bullish expectation. You have the right to buy the underlying asset at the strike price on or before the expiration date.
Not bullish expectation. You are obligated to sell the underlying asset at the strike price on or before the expiration date.
Bearish expectation. You have the right to sell the underlying asset at the strike price on or before the expiration date.
Not bearish expectation. You are obligated to buy the underlying asset at the strike price on or before the expiration date.
B. Spread Strategies
Single-leg options are riskier due to higher price volatility and difficulty in management.
Therefore, consider constructing multi-leg option strategies:
● If you have a moderate bullish expectation on the underlying asset, consider constructing a Bull Spread.
● If you anticipate a moderate pullback in the underlying asset, consider constructing a Bear Spread.
● If you believe the underlying asset will fluctuate within a certain range, consider constructing a Long Butterfly or constructing a Short Iron Condor.
● If you expect the volatility of the underlying asset to exceed a certain range, consider constructing a Short Butterfly or constructing a Long Iron Condor.
C. Volatility Strategies
Since option prices have a positive correlation with implied volatility (IV), you can seek arbitrage opportunities by selling options with higher IV or buying options with lower IV.
Go to Options Chain > Options Analysis > Volatility Analysis to find more information about options' implied volatility.
● If both IV Rank and IV Percentile are high, it might mean that the current option prices are expensive, and you could consider option selling strategies like Short Straddle and Short Strangle.
● If both IV Rank and IV Percentile are low, it might suggest that the current option prices are relatively low, and you could consider option buying strategies like Long Straddle and Long Strangle.
Ⅳ. Considerations
The appeal of 0DTE and close-to-expirationg options partly lies in the potential for high returns over a short period. However, trading expiring options without proper basis and with a gambling mentality can lead to losses.
A. Control Overall Position Size
Managing risk is crucial in option trading, especially with options nearing their expiration.
First, pay attention to position sizing:
For option traders, particularly those dealing with expiring options, controlling position size is vital. Generally, most investors use options as a hedging tool and keep their options position size very low, around 5%.
Set the proportion according to your investment goals and risk tolerance. It's essential to consider the worst-case scenario, such as a total loss on the options investment, and ensure that such a loss wouldn't have an unbearable impact on your overall portfolio.
Second, monitor leverage levels:
Track the leverage ratios of expiring options on the same underlying asset, as they can vary due to different strike prices. A higher leverage ratio means the option price is more sensitive to changes in the underlying asset's price.
While this can offer higher potential returns, it also increases your risk exposure. Therefore, it's necessary to examine whether the leverage ratio aligns with your investment expectations before trading options nearing their expiration. You can view the effective leverage coefficient on the option quote page.
B. Timely Profit Taking and Loss Cutting
First, the volatility of 0DTE and close-to-expiration options is typically high.
This means their prices can experience significant changes in a short time; a few minutes can make a big difference in profits or loss incurred. Therefore, it's necessary to take potential profits promptly to lock in gains and cut losses to help limit potential losses.
Second, their liquidity may decrease as the expiration time approaches.
If you hold such options and have no plans to exercise them, it's advisable to take profits or cut losses in time to avoid scenarios where the option remains untraded or the bid-ask spread causes a loss in premium.
In the trading interface, click the expand button to the right of the [Amount]> in additional orders, select [Bracket Order] to set both profit-taking and stop-loss prices at once while trading the option.
C. Be Mindful of Margin Call Risks
Pay close attention to the status of your account to help avoid unnecessary losses due to insufficient purchasing power.
Step: Click on Accounts > Risk Status to check the status of your account.
Q：Why does longing an option increase the margin requirement?
Generally speaking, as the right party, longing an option does not require an additional margin. However, in terms of account risk, longing an option is equivalent to converting part of your available funds into a non-collateralized option contract of equal value. As a result, the net assets in your account remain unchanged, but the funds available are reduced.
It can be approximated as follows: available funds = net assets - initial margin. The increased margin actually represents a decrease in available funds, similar in principle to when you buy non-collateralizable stock (margin rate of 100%).
Note: For the purpose of risk control, if you long an in-the-money or nearly at-the-money option within 3 hours before the close of the expiration date, the initial margin requirement to open a position will be calculated based on the buying power required to exercise the option.
Q： Why is the margin requirement higher for close-to-expiry options?
Generally at expiry, your option position may undergo the following changes:
1. When you have a long call position that is exercised, it will become a long position of the underlying stock, and the account will deduct the cash required to establish the position.
2. When you have a long put position that is exercised, it will become a short position of the underlying stock, and the account will increase the amount of cash corresponding to the short position.
3. When you have a short call position that is assigned, it will become a short position of the underlying stock, and the account will increase the amount of cash corresponding to the short position.
4. When you have a short put position that is assigned, it will become a long position of the underlying stock, and the account will deduct the cash required to establish the position.
To better monitor the risks associated with the possible option exercises on the expiration day, the brokerage begins to calculate the margin and settlement requirements for options that are in-the-money or close to in-the-money (close meaning within 1% of the exercise price) on the day of expiration usually 3 hours before market close. Not having enough funds for the potential exercise, will lead to the account being marked as "dangerous" from a risk control perspective. Customers should ensure the account has sufficient liquidity for option exercise via closing positions or injecting more funds.
In the case that your account is marked as "dangerous", the brokerage reserves the right to perform the following actions: 1) liquidate your option positions; 2) waive your right to option exercises; 3) execute the option exercise but close the corresponding stock positions afterwards, etc.
Q：Why are my option orders cancelled in certain cases?
If you have an unfilled close-to-expiry option order on the day of contract expiration, the brokerage will calculate the margin required for the exercise and settlement of the option assuming the order is filled.
If the account becomes risky, the brokerage reserves the right to cancel such orders.
Ⅴ. Learn More
When trading options expiring for profit, never forget the risks involved. Always do your due diligence and proceed with caution to prevent the possibility of substantial losses.
You can learn more about options expiring on Futubull Community and share insights with other investors.
