0DTE options are not inherently better than 45-day options, as the suitability depends on the trader's strategy, risk tolerance, and market conditions. Here's a comparison of the two:
- Market Response: 0DTE options are more responsive to price changes, especially at the end of the trading day, due to their shorter time until expiration12. This makes them suitable for traders looking to capitalize on short-term volatility. In contrast, 45-day options provide more time for the underlying asset to move in the desired direction, which can increase the value of the option1.
- Theta Decay: 0DTE options experience significantly faster theta decay compared to 45-day options2. This rapid decay means that the price of a 0DTE option will decline rapidly as the expiration nears, which can be advantageous for options sellers looking to collect premium. However, this also implies higher risk due to the rapid decline in value2.
- Profitability: Backtesting suggests that 0DTE options can be more profitable than 45-day options, as they minimize market fluctuations and reduce theta decay premium3. This is because the market is less able to price in risk and reward when it comes to the rapid expiration of 0DTE options2.
- Risk: The main drawback of 0DTE options is the high risk associated with their rapid decay and the exposure to market fluctuations for the brief period before expiration32. In contrast, 45-day options provide a longer time horizon, which can reduce the impact of short-term market volatility1.
- Strategies: Traders who prefer a shorter-term, high-risk, high-reward strategy might find 0DTE options attractive. Those who are more risk-averse or prefer to capitalize on longer-term trends might find 45-day options more suitable12.
In conclusion, whether 0DTE options are better than 45-day options depends on the trader's individual goals, risk tolerance, and market view. It's important to consider the trade-offs between the two and choose the option that aligns best with one's trading strategy and objectives.