The Premium Collection Strategy: Selling 0DTE Options Explained

When it comes to short-term options trading, selling 0DTE options has emerged as one of the most effective approaches for capturing rapid premium decay. Unlike buying options, which requires precise directional predictions, selling 0DTE options allows traders to profit from time decay and volatility collapse within a single trading day. This strategy has become increasingly popular among experienced options traders who understand the mechanics of theta decay and probability of profit.

Understanding 0DTE Options and the Selling Advantage

A 0DTE (Zero Days To Expiration) option is an options contract that expires at the end of the current trading day, making the underlying asset’s price movement throughout that day the sole determinant of the contract’s final value. The critical advantage for sellers is that all remaining time value evaporates by market close—a phenomenon that works directly in their favor.

Since their introduction to broader markets, 0DTE options have fundamentally changed how traders approach intraday volatility. Selling 0DTE options capitalizes on this unique feature: as expiration approaches, option premiums compress toward intrinsic value, rewarding sellers who collected premium at entry. This creates what market participants call a “mechanical advantage” for premium collectors.

The strategy gained significant traction after the CBOE introduced weekly options in 2005, followed by Monday and Wednesday options. The real transformation occurred in 2022, when 0DTE options became available on the S&P 500 Index (SPX) and the SPDR S&P 500 ETF Trust (SPY) for all five trading days of the week. This expansion opened unprecedented opportunities for selling strategies across the market.

Market Liquidity and the Case for SPX-Based Premium Selling

Not all 0DTE options are created equal when it comes to executing selling strategies. While technically all optionable stocks offer 0DTE options at least once monthly, the SPX dominates the premium-selling landscape due to its exceptional liquidity. Most stocks offering only weekly or monthly options provide significantly tighter trading opportunities for sellers—when you need to adjust a position quickly, poor liquidity means wider bid-ask spreads and considerable slippage.

The SPX’s liquidity advantage is substantial. According to Goldman Sachs research, nearly half of all trading volume on the SPX consists of 0DTE trades, with a significant portion attributable to premium-selling strategies. This volume density ensures that sellers can enter and exit positions at predictable prices, a critical requirement when managing risk in single-day trades.

For traders executing selling strategies, account size matters significantly. If you open and close a 0DTE option position, it counts as a day trade, requiring at least $25,000 in your account to avoid triggering the pattern day trader (PDT) rule. However, there’s an important nuance: buying or selling a 0DTE option and allowing it to expire without closing counts differently in regulatory terms. Still, most serious premium sellers actively manage their positions rather than hold until expiration, given the potential for unexpected intraday moves.

The Mechanics of Premium Collection Through Selling

The fundamental appeal of selling 0DTE options lies in probability mathematics. When you sell an out-of-the-money (OTM) option, you immediately collect premium. For that option to result in a loss, the underlying asset must move beyond your strike price by more than the premium received. With only hours until expiration, this creates a statistically favorable scenario for sellers.

This high probability of success explains why selling has eclipsed buying as the preferred approach for 0DTE trading. Experienced traders recognize that selling OTM options intraday offers more consistent outcomes than attempting to capture directional moves before expiration. The time decay—or “theta decay”—works as a silent profit engine. Every passing hour reduces the option’s value, automatically improving the seller’s position without requiring price movement in a particular direction.

The tradeoff is volatility management. While selling generates consistent small wins, adverse market moves can create substantial unrealized losses during the trading day. This dynamic demands active management and predetermined stop-loss discipline.

Professional Selling Strategies: Iron Condor and Iron Butterfly

Most professional traders pursuing selling strategies use two primary frameworks: the iron condor and the iron butterfly. Both strategies are specifically designed around the intraday selling environment that 0DTE options provide.

Iron Condor: Betting on Range-Bound Movement

The iron condor strategy involves simultaneously selling both a put credit spread and a call credit spread on an underlying stock or index. The approach assumes the underlying asset will trade within a defined range until expiration. For example, selling a 5-wide iron condor generates $500 in collected premium (assuming $100 multiplier), with maximum loss capped at $500 if the underlying moves beyond your outer strikes.

What makes iron condors attractive for selling strategies is their probability profile. The position makes money as long as the underlying remains within your selected range by market close—a favorable bet when you have a full trading day to manage adjustments. Maximum profit equals the net credit received at entry, while maximum loss is limited and defined from the start, creating favorable risk-reward dynamics for premium collectors.

Iron Butterfly: Premium Collection on Volatility Decline

The iron butterfly serves as a more aggressive selling variant, optimized for traders expecting price stability and declining volatility. This strategy involves selling an at-the-money (ATM) call and an ATM put simultaneously, then buying further out-of-the-money protective options on both sides. Because ATM options command higher premiums than OTM options, iron butterfly sellers collect more upfront premium—a significant advantage compared to iron condor setups.

Like the iron condor, maximum profit and loss are defined at entry. A 5-wide iron butterfly produces the same defined risk, but the enhanced premium collection allows sellers to target profitability by capturing just 25-50% of the premium before closing. This flexibility makes iron butterflies particularly appealing for traders with limited time availability.

Selling 0DTE Options: Essential Risk Considerations

While selling 0DTE options offers compelling advantages, successful traders understand that single-day expiration creates intense volatility. Even options expiring worthless can generate significant unrealized losses throughout the trading day due to intraday price swings. This reality demands rigorous position management and emotional discipline.

Active management becomes non-negotiable when selling 0DTE options. Traders must adjust positions if the underlying moves outside their defined range—and such moves can develop rapidly when you’re working within a six-and-a-half hour trading window. Pre-established profit targets and stop-loss levels are essential, not optional.

Account requirements and pattern day trader rules also warrant careful consideration. Traders without $25,000 in their account may find the day trading restrictions prohibitive, as the inability to close losing positions quickly can cascade into unmanageable losses.

The Evolution and Future of 0DTE Premium Selling

The trajectory of 0DTE options reflects the market’s recognition of premium-selling strategies. Starting with CBOE’s introduction of weekly options in 2005, the market steadily expanded opportunities. The 2022 expansion to daily 0DTE options on SPX and SPY catalyzed explosive growth, with trading volume skyrocketing and professional market makers increasingly dominating the premium-selling landscape.

This market evolution creates both opportunity and challenge for individual traders attempting to sell 0DTE options. The liquidity and availability are now exceptional, but the market has become more sophisticated and competitive. Traders must refine their risk management and maintain discipline to remain profitable.

Conclusion: Selling 0DTE Options in Modern Markets

Selling 0DTE options represents a compelling approach for traders seeking to profit from intraday price action and volatility decay. The strategy offers high probability of profit due to time decay advantages, exceptional market liquidity on major indices, and defined risk parameters—particularly when executed through iron condor and iron butterfly strategies. The growth in 0DTE trading volume since 2022 demonstrates sustained market interest in these opportunities.

However, selling 0DTE options demands rigorous preparation: adequate account capital, robust risk management systems, and active position monitoring throughout the trading day. Those willing to meet these requirements can leverage the mechanical advantages that selling 0DTE options provides, turning intraday volatility into systematic premium income.

Disclaimer: This analysis is for educational purposes. Options trading involves substantial risk and may not be suitable for all investors. Past performance is not indicative of future results. Consult with a qualified financial advisor before implementing any trading strategy.