Zero-Day Option

A Zero-Day Option refers to an options contract that is set to expire on the same day it is traded. These options are highly speculative and often used by traders seeking to capitalize on intraday price movements in the underlying asset. Zero-day options require precise timing and carry high risk, as there is no time for the option to recover value if the trade moves against the holder.

Example

A trader buys a zero-day option on a stock in the morning, speculating that the stock will increase in value before the market closes on the same day.

Key points

• An options contract that expires on the same day it is traded.

• High-risk, speculative instruments used to capitalize on intraday price movements.

• Requires precise timing and carries significant risk due to lack of time for price recovery.

Quick Answers to Curious Questions

Why are zero-day options considered high-risk?

They expire on the same day they are traded, meaning there is no time for the option to recover value if the underlying asset moves against the trader.

What strategies are commonly used with zero-day options?

These options are often used for day trading or speculative strategies focused on intraday price movements.

How do zero-day options differ from standard options?

Standard options typically have longer expiration periods, giving traders more time for their positions to move into profitability, whereas zero-day options expire the same day, requiring precise timing.