How To Have a Killer Edge With 0 DTE Options

zero DTE options trading strategies can deliver big profits and big profits quickly but you need a solid Edge that's different than the crowd or else you're just gambling in this video two of our most experienced Traders team up to give you a method with a killer Edge I'm Mike Bella Fury and we're one of the top proprietary trading firms located in New York since 2005 and proud to develop num 7 and even eight figure per year Traders watch take notes and learn from two professional Traders on our desk so you can grow your trading account hi I'm Seth freyberg and I'm the head Trader of SNB capitals options trading desk here in Manhattan and I'm here again with Garrett dryan who is our in-house expert on technical indicators which is really a fancy way of saying that Garrett through years of studying the markets and trading has figured out that the market gives us strong Clues as to how any particular Market day is likely to play out and these Clues are picked up on in lots of different different ways and so today is the second part of our four-part series on the subject of how to read what the market is telling us about how today is likely to play out and how we can then use zero DTE options strategies strategies which utilize options contracts expiring the same day to capitalize on those Clues now in last week's video Garrett covered the topic of Market internals and he demonstrated the three key indicators that he looks at to form his view of the way that the Market's going to play out that day now in today's video we're going to be covering the second Edge that Garrett uses to fortify his view of where the Market's going to be on a particular day and that's through a powerful watch list that he's created which contains the ticker symbols of specific exchange traded funds ETFs which when viewed together give you a pretty clear idea of whether the big money guys are dictating that today is going to be a risk-on bullish kind of a day or a risk off bearish kind of a day and if we can figure that out think of the edge you'll have particularly with option strategies where you can have awesome trade results with minimal downside risk if you're absolutely brand new to options trading and you don't know much about options and how they work we've created a video for you to understand options Basics and if you click the video appearing on your screen right now it will lay out the groundwork for you to understand this strategy we're going to be sharing with you in this video Then when you're finished you can come come back and watch the rest of the video okay so with that said g k please tell us a little bit about how this ETF filter that you've built how it works exactly to give us Edge in the markets yeah so let's talk about some Market ETFs here so there are two reasons why I use this Market ETF filter one is to figure out what I might want to be trading right because there are different areas of the market that are going to be in play on different days and there are certain things that are going to be showing relative strength or relative weakness and those could be entire sectors or areas of the market and so that might mean I'm gravitating to high beta growth stocks for a reason right but the other reason the second reason I use this Market ETF filter is to assess the tone of the market so on any given day the market is going to have a different tone right and that could be a risk on tone it could be a risk off tone and so what I'm really trying to decipher with this is what is the risk appetite of the market so what I'm asking myself every morning when I'm looking at this ETF filter what are the sectors that are driving the move right we have our offensive Industries and we have our defensive Industries and we can break these into categories so for example if we're seeing a big up move off the open a big opening drive I want to go look to see what is leading this rally okay so if offensive Industries are leading this rally then I know that this drive is happening with a risk on tone in the market if defensive Industries and we'll cover these in a second we'll cover the exact industries that I'm talking about if defensive Industries are leading the rally then I might question whether this Val is sustainable because we're not getting the kinds of industries that typically signal risk on leading this rally right so so this is the the overview of kind of why I use this Market ETF and then I'll I'll show How I build it we'll show mine I took some screenshots um on a particular day and we can kind of use that day to demonstrate this so the third thing I'm looking at are these thematic asset classes and these can kind of change but the market tends to trade around themes and so we'll go over those as well because that can also highlight the tone of the market on a given day all right so here's a very simple breakdown and I'll show you my ETF filter in a second and it has more ETFs than just these but mine has a lot of ETFs in it as you'll see and this is because I've been looking at this for a while and it has more than you'd need so if you're just going to have a few ETFs in your filter these are the ones that I would have these are the basics these are the big ones I actually have them bold in my ETF filter because I really want to see what these are doing so on the left we have our risk on offensive ETFs right so this is technology consumer discretionary right stuff that people buy when they have extra money when they have extra income um things that you don't necessarily need every day right SMH the semiconductors right a Big Drver of the growth areas of technology or the semiconductors so that's going to be a sector that I'm going to want to see lead on a really strong day or lead to the downside meaning be weaker than everything else on a really weak day and then of course Arc which is mainly filled with high growth tech technology and Innovative types of companies that again is because it's centered around growth it's going to signify risk on then we have our defensive ETFs okay so this is utilities Consumer Staples right the kind of things people buy no matter what right like toilet paper and toothpaste and things that you know are very very steady steady companies that money will flow into often during an economic downturn or even just one one day of selling there might be money coming out of these growth stocks and into these safer Industries like your Consumer Staples right and Health Care is another one of those things right everyone needs health care and there's kind of a caveat to that because sometimes there are biotechs that are very growth oriented and high-risk within healthc care but we're really talking about the large Healthcare companies and then of course uvxy which is vix so implied volatility right when implied volatility is spiking that can signify risk off in the market and then on the right we have our thematic macro themes and these again like I said these can change but often in over the past few years like it hasn't been a mystery that the market has revolved around caring about rates right interest rates yields inflation and so these are the things that have a direct relationship with inflation and with rates right the US dollar the TLT which is the treasury bonds right and that's going to move inverse of rates so that's a good proxy for rates and then hyg which is high yield bonds right so these are riskier assets that're very highly correlated to rates and of course you can watch crypto because this is a highly highly risk on asset that tends to outperform when there's a risk appetite let's move to my ETF filter I'll show you what it looks like on the very far right that's my entire ETF filter and like I said it has a lot of ETFs on there you don't need that many but that's just mine okay and you can kind of pause the screen if you really want to look at like everything in there um but here's how I do it so it's a basket of Market ETFs and I have a column for arval and I have a column for percent change from the open and that's really important because I really want to see how this stuff is acting off the open since 9:30 so since all the volume starts flowing in to the market during regular trading hours that's what I care about right because a lot of times big gap Downs can get bought big gap UPS can get sold and I want to see what is the money doing as soon as the volume comes in and so that's why I do percent change from the open and then I have a column for absolute change from the open and the reason I do these is because I'm able to sort my ETF filter by each of these columns in order to see with arval what's in play percent change from the open what's strong and what's weak and then absolute percent change from the open tells me the things that are the strongest or the weakest period And I have it colorcoded so that if it's above the open it has a green background and it's below the open open it has a red background so here's the day that I'm going to show as an example and this is just a day that I happened to screenshot my ETF filters that's not something I do every day and I can't go back in time and just grab any day with my ETF filter so I actually took screenshots for whatever reason on this day of my ETF filter and we'll just kind of go through and you can see that this is a weak Market Day right we there was a sustained uh offer in this market and and we did close at the lows and there were some signs that this selling might continue because of what I was seeing in the ETF filter here we have the ETF filter sorted by arval so like I said this is going to show me what's doing the most volume and so the way that I interpret that is these are the areas of the market that are most in play and that's something I'm very interested in because I want to know on that day what areas of the market does the market care about and so in this case it it's you know with hyg we have high yield bonds and they're actually extremely weak right so high yield bonds are getting sold so that's a riskof signal volatility is getting bought right and that's in play as well which is pretty unusual and rates are higher because TLT is getting sold and that's in play as well so what this is immediately telling me is that today is a day that seems to be about rates and about that macro picture and What's happen happening is that rates are moving higher all right so here is the same ETF filter sorted by percent down so I'm now screening for the weakest areas of the market so immediately right at the top the weakest thing we have in the market is Arc right and we can actually see three different Arc ETFs so we can see immediately that growth stocks are getting sold and we can see with gbtc that crypto is getting sold right so these are all risk off tone signals and then consumer discretionary is getting sold as well right and that's another big one that we just covered right so so now not only do we have the macro theme of rates going higher but we have growth stocks being the weakest stocks in the market right so this is not a recipe for a rally so if I'm looking for a reversal on a day like this I'm looking at this ETF saying oh wait a second you know we might actually remain weak all day because there seems to be a theme happening here so now I'll sort it by percent up so I want to see what the strongest areas of the market are so we already saw volatility when we sorted it by arval right but now we can see volatility is the strongest consumer staples are right at the top of the list right so your your toilet paper companies and your toothpaste companies right and so when you see a rally or something like that you don't want to see the toilet paper companies leading that rally right that's not what you want to see so we see the dollars getting bought right that's another macro picture and a lot of the times when we're afraid of rates going higher and we're afraid of inflation a strong dollar does not favor a strong market right so we're this theme is just continuing and continuing as we assess this ETF filter and then of course if we move down it's below the open it is red XLV being Healthcare but it is relatively strong because we don't have many green sectors period in this market right so we kind of see that the strongest Market ETF is actually XLV here um which again that's a defensive sector so that doesn't really bod well either if that is the strongest sector okay so Garrett let me jump in here for a few minutes because I'd like to give the viewers some insight into how options Traders might view a situation where your basket of ETFs would clearly seem to be pushing A bearish Narrative for the day and the first thing I like to say and would you emphasize in how you teach other people about the markets is that this basket of ETFs is one information set that can have a big impact on the way you're viewing the market on any particular day but like we discussed last week suppose that on this day this example that you're giving us from February 21st 20123 about a year ago you not only had this clear bearish picture emerging from your ETF basket but you also had strong negative Market internals like we covered in last week's video in that case then you might form of view that we're getting a very strong confirmation from multiple sources now that this day the Market's going to go south and we can have a lot of conviction about it and so under those circumstances an options Trader has the option of entering a trade where if you're outright wrong about the direction you're going to lose obviously the trade but if you're right you can make it great return and have a great trade so let's take a look at how we could make that happen so let's move to right around 11:00 a. m. after you know we've studied the market enough to know that we've got both the market internals and this basket of ETFs all pointing to a pretty strongly a conclusion that there's going to be a continuation of a bearish day so at this point we have to ask ourselves this key question how strong is our conviction that the market bearishness will continue throughout the day and as Garrett has shared with me his view is that his conviction is substantially strengthen if the market internals that we discussed last week the vold ratio the advanced decline line and the tick are all bearish also then his conviction in the direction suggested by the ETF basket is significantly increased whereas if the internals are not particularly strong on their own then he's going to be less convicted so let's take a look at a way that we could have handled the trade on this day back in February of 2023 so as you can see at 11:00 a.

m. on that day the cu's which had been selling off for a week continued their bearish tone and by that hour had reached 29628 so let's say that on that day we not only had that bearish information derived from the the ETF basket but we also had the strongly negative Market internals that we discussed in last week's video then in that case we can classify our conviction as strong and so we can enter into a trade that's a little bit more aggressive and so let's say that at 11:00 a. m.

that day we found a put trading just a point below where the market was trading the 295 put on the q's and we went ahead and bought 40 of those and then simultaneously we sold right below that 40 of the 294 puts again both puts expiring that same day well when we do that buying a put higher up on an options chain and selling a put below that we've executed what options Traders is referred to as a put debit spread okay so now let's see what's happened here so that we can understand our risk on a put debit spread you see when we buy a put debit spread the cash flow goes like this we bought 40 of the 295 puts but remember each put represents the right to sell shares of the cues at the put strike price so you multiply that price by 100 and you bought 40 of them so when you multiply it all together you've paid $2,360 for those 40 puts but then we sold 40 of the 294 puts for 32 so using the same kind of calculation to figure out how much you receed back for selling those puts you get $1,280 and so when you net that out of what you spent for the 295 puts you arrive at a cash outflow in other words a cost of $1,080 and that's your risk for the trade now why do I say that's the risk on the trade well think about it at any closing price above 295 the 295 put expires worthless because the right to sell a stock below where it's trading is obviously nothing at expiration and the same thing of course is true for the puts we sold at 294 they're worth nothing and so what we're saying here is that if the stock doesn't continue to sell off below the stocks price when we entered the debit spread options trade then we're going to lose that $180 at expiration but on the other hand if the stock does continue to sell off and gets below 295 then the debit spread can become very valuable which is exactly what happened in this case the ETF basket proved right because if we move to 4m that day we can see that the q's closed at 2 94. 0 3 on that day the day that they expired and so the way you determine the value of puts at expiration is to First determine if the stocks price had closed below the puts strike price and if it did then you take the strike price which in the case of the 40 puts we had bought was was 295 so we subtract from 295 the closing price which is 294. 00 3 and that results in an ending value of 97 cents for that option why because that put confers on the owner the right to sell 100 shares of the cues for each share he owns for 97 cents more than they're actually worth in the open market at the close and so as you can see from the calculation that right for those 40 puts is worth $3,880 but then turning to the 40 puts we sold at 294 well those actually expire with no value because there's no value to the right to sell shares at 294 when they can be sold in the open market for 29403 obviously 3 cents higher and so those options simply expire worthless resulting When You Subtract out the original cost of the trade a profit of $2,800 $ which is a 29% return on the trade in less than a day and so our strong conviction paid off and the debit spread was you know very successful now let's take a second case though let's say that hypothetically on this day that the market internals were not really strongly negative perhaps they were kind of neutral or maybe just slightly bearish well then in that case we would enter a less aggressive trade and a very good example of a much less aggressive trade would be a slightly outof the- money call Credit spread like we've entered in this example Now call Credit spread differs from a put debit spread in that when you sell a call lower on an options chain and you buy a call higher on that same options chain we don't pay money actually we receive money which is why it's called a credit spread and that's because calls closer to the price of the stock are more expensive than calls far away from the stock price because the market doesn't have to move up very much for that call to have value at the end of the day when it expires so that's in the case of the 297 call uh when the stock is trading at 29628 it doesn't take much to get to 297 but it takes a much bigger move for the stock to get to 298 and so that 298 call is less likely to have any value at all at the end of the day and so the call more likely to have value is going to have a higher price than the call having less of a likelihood of value and this was clearly the case here where the 297 calls were trading for 80 cents therefore bringing in $1,200 in cash but the 298 that we bought for protection those cost us only $720 resulting in net positive cash flow of 480 your broker is going to require you to have at least $1,020 in your account which is also the worst case scenario loss on the trade just like the worst case scenario loss on the put debit spread which was the $1,080 figure that we paid for that put debit spread so we tried to create an example here for you where the dollar risk is about the same as the put debit spread trade so now even though the same dollars are being risked with the call Credit spread as they were with the put debit spread why do I say that this is a much less risky trade and this is important to understand so I want you to think about it when the trade is executed we immediately received cash right that $480 so the goal of a call Credit spread trade is to keep that cash that you received when you open the trade and the cues were trading at 29628 when we entered the trade which was below both the 297 calls we sold and even farther of course obviously below the 298 calls we bought and calls only have value if the market closes above that call strike price at expiration because they only have value if that call gives you the right to buy the stock for cheaper than it's trading in the open market if the stock closes below its strike price then the call logically has no value at expiration which is what you want in this case you want the calls to expire with no value because then you get to keep that cash that you got at the beginning of the trade and the options just die and go to options heaven and that's exactly the outcome you want and so if you think about it even if the ETF basket was wrong and the stock had rallied by the end of the day up to 297 we would still win the trade why because unless the lowest calls price is exceeded by the stocks price at expiration it has no value and at every closing price up to 297 those calls still have no value and so the trader just keeps the $480 in cash and he gets to keep that same amount of cash if the stock goes up to 297 and of course at any price below that and so when the market closed that day as you remember the cues were priced at 29403 and so recalling that we received that 480 in cash originally then valuing the final profit on on the trades pretty easy because both the calls we sold at 297 and the ones we bought at 298 those expire worthless resulting in you're just keeping the cash you received when you sold the call Credit spread in the first place as your profit and so comparing the two strategies you can see that generally if your basket of ETFs is flashing a strong bear signal and you're getting confirmation from the market internals then you can go for it and put on an aggressive trade like the out of the money put debit spread and if you're right by enough you can get a big win which in this case was $2,800 on a pretty small amount of risk whereas I'd argue the call Credit spread is your better choice for the case where your basket of ETFs is pointing bearishly but you don't have super strong confirmation from your Market internals in which case you want a trade where there are more scenarios that can give you a win including that you were outright wrong and the stock actually rallied a little bit and as we just covered even in a mild rally like a bounce up to 297 you still win and it's a full win which is pretty amazing if you think about it but of course the win is much smaller in other words if there are less scenarios for a win you'll get rewarded more with option strategies and conversely the more scenarios where you can win the less you can make on an option strategy which intuitively I think makes sense to most people okay so Garrett uh did you have any final thoughts for us on this subject of the ETF basket yeah great so let's zoom out just a little bit and see if we can kind of fit it all together and and just put a little bit of color on the trades that Seth just outlined it's really important to note that this Market ETF filter it's not going to stand on its own all the time and most of the time it won't it's a very very powerful tool that gives me a lot of information but this is why Seth outlined two different trades and I love how he did this I thought this is great because it kind of puts into context all three of the things that are important to me okay so we talked about the market internals last week in the first video in this series and if you missed that you can go back and watch it and and we can link it in the comments below that is key if I'm looking for a trend day right so this is why Seth outlined an aggressive trade when we had all the market internals pointing to the potential of a trend day and then we had the ETF filter confirmed Ming that we have a very particular risk appetite risk on or risk off tone in the market in this case risk off in these examples of course so it's very important to differentiate as Seth did in those trades that there is a huge difference between when we have everything pointing in our favor or just the market ETFs if we just have the market ETFs in our favor it might just mean that like in this day when we saw a lot of riskof signals in the market ETFs it might just mean that we might have a hard time rallying it doesn't necessarily mean that we get crushed in Trend all day right so this is why it's really smart to think about the two different option strategies that Seth outlined and why each one is specifically catered to each scenario and so the third thing that I always look for of course is the price action right I want the price action confirming what I'm seeing in the market internals and the market ETFs right if I'm seeing a risk-off tone in the market ETFs I want to see that they're selling the indexes right that's very important to me because I'm not just going to blindly fight a rally but if we get that weak price action and we have negative internals and risk-off tone in the market then for me that gives me a lot more Edge to make the call and to put on these types of Trades that Seth is outlining here what I'd like you to take away from today's video is that professional Traders are informed by the behavior of ETFs representing different Market sectors and it allows a Trader to form a bullish or bearish bias for the day but it's very important to understand that you can have varying levels of conviction about a trade and that can come from the other indicators that you use to determine market direction for the day like the market internals that we covered in last week's video and so option strategies are so flexible that you can make choices between strategies based on your level of conviction for any given trade and as you can see there will always be a tradeoff like we just discussed a better reward for a trade where basically only one scenario wins the trade such as to put debit spread or you can choose a lesser win where you're less convicted about the trading day where while you don't make as much your chances of winning are so much higher that it may be worth it like in the case of the call Credit spread where pretty much any scenario except you're being really wrong about the day's direction would have resulted in a modest but pretty satisfying win nonetheless these kinds of tradeoffs are understood by professional Traders and now you've got a little bit of the insight to apply these two option strategies yourself depending upon your conviction level on a trade all right so thanks Garett and to all of you we're looking forward to sharing part three of this series next week on trading zero DTE options using market indicators now if you'd like to learn three more option strategies that our prot Traders use including the unique options trick that allows you to make money while you wait to buy stocks or ETFs at the price you want and the options income strategy that allows you to make cons consistent money whether the market goes up or down or sideways and how to make money on a stock or index trade even if you're wrong on the direction then click the link that's appearing right now at the top right hand corner of your screen that will open up the free Workshop registration page in a new window so don't worry you won't lose this video or you can register directly for free at options.