BY ANDREW GIOVINAZZI
December 22, 2023
Yo Pit Crazies,
If you want to ride the January Wave with Mark and Licia for 0DTE options, sign up here.
I am happy to explain a couple things why the 0DTE options are so popular. The big word is gamma. I hear people all the time try and simplify what you mean when you use jargon-type words like gamma.
The first thing to understand when I trade options is wanting the Greek I have. Gamma just means that the option can change price very quickly relative to how the underlying moves. It is stepping on the gas on a Tesla or a dump truck. One moves, the other just barely moves.
One reason 0DTE options have taken off is the cash settlement feature for the indexes. Buy the options and If I am right, they settle for big cash money. I think the trend will be for more 1 day cash settled products but for names like Apple Inc (Ticker: AAPL) or Nvidia Corp (Ticker: NVDA).
So it is best to learn how to trade them right.
It is the gamma, stupid
The reason stocks like Nvidia Corp (Ticker: NVDA) could make a good 0DTE trader is the fact the stock can move $15 -$20 in a day. Take a look at the SPX snap above where the SPX Dec26 4775 calls are $2.80. Once I was 15 minutes into writing this post, the calls were $3.80 and SPX was headed over 4770. SPX up $10 and the calls are $10 for a pretty 4X return.
The small option prices turning into big options with a high priced index is the magic of gamma. The 2nd magical ingredient is cash settlement. I believe CBOE will apply for cash settled, equity indexes or some equivalent this year. Then it will be off to the races so it is best to understand the risks involved here.
To Your Trading Success,
AG
Andrew Giovinazzi
30-Year Trading Pro
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