1 High-Risk, High-Reward Way to Trade Earnings with 0DTE Options

Core Insights - The article discusses the rising popularity of zero-days-to-expiration (0DTE) options among active traders, highlighting their concentrated exposure during high-leverage events [6] - It emphasizes the risk-reward profile of short-term options, particularly in the context of earnings reports, where traders can experience significant gains or losses in a single trading session [14][20] Group 1: 0DTE Options Overview - 0DTE options are designed for traders looking to express a directional view with limited risk, as the maximum potential loss is confined to the premium paid [1] - These options are particularly appealing for capturing market reactions to earnings reports, Federal Reserve decisions, or other impactful events [3][4] - The structure of 0DTE options allows for a straightforward, high-leverage way to express market views, but they also carry the risk of total premium loss if the market does not move as anticipated [15][20] Group 2: Earnings and Market Reactions - The article provides a real-world example involving AbbVie, where the stock's earnings report coincided with the expiration of its weekly options, creating a 0DTE setup [9] - Following AbbVie's earnings release, the stock fell approximately 4.5%, rendering upside calls worthless while downside puts yielded a return of about 122% [12][13] - The options market had anticipated a move of roughly 2.4% higher for calls and 2.1% lower for puts, illustrating the potential for significant price swings around earnings [11] Group 3: Trading Strategies and Risks - Short-term options trading, especially around earnings, can lead to binary outcomes with stocks experiencing sharp movements, attracting traders seeking defined risk [14] - The article warns that selling short-term options, particularly naked positions, involves substantial risk and requires significant margin [7][19] - Traders are advised to engage in mock trading to understand the behavior of short-term options and refine their strategies before committing real capital [22][23]