0DTE Results After 295 Trades

Here's a comprehensive summary of the YouTube video transcript:

Key Concepts

Zero Days to Expiration (0DTE) Trading: Trading options contracts that expire on the same day they are initiated.
One Day to Expiration (1DTE) Trading: Trading options contracts that expire on the day after they are initiated.
Trading Bots: Automated systems used to execute trading strategies.
Iron Condor: An options strategy that involves selling an out-of-the-money (OTM) call spread and an OTM put spread simultaneously. It profits from low volatility.
Iron Butterfly: An options strategy similar to an iron condor but with the short strikes of the call and put spreads being the same. It profits from the underlying asset closing near a specific price at expiration.
Profit Factor: A ratio of gross profits to gross losses. A profit factor greater than 1 indicates profitability.
Win Rate: The percentage of trades that result in a profit.
Average Win/Loss: The average profit of winning trades compared to the average loss of losing trades.
Hindsight Report: A report that analyzes past trades by assuming they were held until expiration to evaluate the effectiveness of early management decisions.
Positive Skew: A trading strategy that has a higher probability of small gains and a lower probability of large losses, or vice versa. In this context, it refers to strategies that aim for higher win rates with potentially smaller profits.
Negative Skew: A trading strategy that has a lower probability of gains but a higher probability of large profits when it does win.
ADX (Average Directional Index): A technical indicator used to measure the strength of a trend. In this context, "ADX widebody" refers to a specific strategy.
ORB (Opening Range Breakout): A trading strategy that involves entering a trade when the price breaks out of a predefined range established during the opening period of the trading session.

Personal 0DTE Trading Performance Review

The speaker, Kirk from Optional Alpha, provides a detailed recap of his personal 0DTE trading performance after approximately 295 trades across four different bots. He emphasizes that this number of trades is only achievable through automated bots, as manual execution of this volume would be impossible for him. The 0DTE nature of these strategies significantly compresses the timeline for data analysis, allowing for faster iteration and improvement compared to longer-dated options.

Key Performance Metrics (Overall):

Total Trades: 295
Current P&L: Slightly positive, but subject to market volatility.
Win Rate: Just under 50%. Kirk aims to improve this to over 50%.
Profit Factor: Slightly above 1, which is considered acceptable.
Average Win: Approximately $190.
Average Loss: Approximately $156.
Days in Trade: Typically a couple of hours, with most trades initiated between 1:30 PM and 3:30 PM ET.

Capital Allocation:

The total allocated capital is $23,000, but Kirk notes this is likely an overestimation as individual trades require minimal capital ($200-$50). He suggests reducing the allocation to make the return percentage appear higher.

Bot and Strategy Breakdown

Kirk runs four strategies, three of which are 0DTE and one is 1DTE. All strategies are focused on the S&P 500.

150 Iron Butterfly (0DTE):
- Description: Entered later in the day, aiming for positive skew. It's a slightly OTM iron butterfly that takes profits at 40%.
- Performance: This is currently the best-performing strategy in terms of total P&L.
- Hindsight Analysis: The hindsight report suggests that holding this strategy until expiration might have yielded better results, indicating potential for leaving money on the table with early profit-taking. However, the difference is not drastically significant.
230 Run Expiration Iron Condor (0DTE):
- Description: A more stringent iron condor strategy that requires specific pricing conditions. It may not enter trades on extremely calm days with low volatility, which has helped it avoid potentially losing trades.
- Performance: This strategy has experienced some significant losses, including an $1,800 loss on October 10th due to high market volatility. However, the average P&L is manageable.
0DTE Widebody (ADX Widebody Iron Condor) (0DTE):
- Description: This strategy was added with the primary goal of increasing the overall portfolio win rate. It is characterized by a very wide position and a high win rate (around 90% in backtesting).
- Performance: While it boasts a high win rate, it also incurs significant outlier losses, with a maximum loss of approximately $1,800-$1,900, mirroring the backtesting results. This strategy is identified as needing improvement to curb these large losses.
- Rationale for Addition: It was introduced to counteract the lower win rates of other strategies in the portfolio.
1DTE Narrow Iron Condor (1DTE):
- Description: A newer strategy that Kirk has previously covered in a video series.
- Performance: Performing as expected, but has not yet accumulated a large number of trades.

Strategy Complementarity and Portfolio Construction

Kirk emphasizes the importance of selecting strategies that complement each other to create a smoother overall portfolio P&L curve. He avoids adding strategies that are too similar to existing ones. His current portfolio aims for a mix of:

Expiration Times: 0DTE and 1DTE.
Strategy Types: Iron butterflies and iron condors with varying widths and risk profiles.
Win Rate Profiles: A blend of higher win rate strategies (like the widebody) and potentially lower win rate, higher reward strategies.

The goal is for different strategies to perform well in different market conditions, leading to a more consistent overall performance.

Areas for Improvement and Future Considerations

Improving Win Rate: Kirk explicitly states his desire to increase the overall win rate from under 50% to over 50%.
Curbing Max Losses on Widebody Strategy (C): The 0DTE Widebody strategy (C) is identified as the primary area for improvement. Kirk plans to focus on reducing the magnitude of its largest losses, even if it means sacrificing some win rate. He may create a dedicated video series on this.
Hindsight Report Insights: The analysis of the hindsight report for the 150 Iron Butterfly suggests that holding until expiration might be more beneficial, prompting further investigation into early profit-taking rules.
Adding Directional/Momentum Plays: Kirk is considering adding an ORB (Opening Range Breakout) strategy to his portfolio. This would introduce a directional or momentum component, which is currently absent in his non-directional 0DTE strategies. This addition aims to complement the existing strategies and potentially allow for earlier entry into trades.

Conclusion and Future Outlook

Kirk is satisfied with the current combined performance of his 0DTE strategies, noting that the summation of individual trades creates a smoother P&L curve than any single strategy alone. He plans to revisit this analysis around the 500-600 trade mark. The focus for future development will be on refining the Widebody strategy (C) to mitigate its large losses and potentially incorporating a directional strategy like ORB to enhance portfolio diversification and trading opportunities.