Explanation on 0dte Short Call

Hi guys, I know that if it’s too good to be true, there’s a catch somewhere, but I still wanted someone to explain it to me because I don’t seem to understand the risk. I have this strategy on paper trading where I sell OTM 0dte call at a strike where it is impossible for the price to hit in a day for a couple of cents per contract but I buy a lot of them. For example, if SPY is at 770 at 2pm, I’ll sell the 780 call for 0.05 cents x a lot or contracts and take profit when the contracts are worth 0.01 or let it expire to collect the premium. It seems to be working every single time on paper trades but I’ve never tried it on a real account. What’s the catch here that I’m missing? Seems like an infinite money glitch…

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u/Civil-Woodpecker8086 1 3 days ago

Probably never get filled in real life, what paper trading software you playing/testing with?
u/MarkDazzling7754 1 3 days ago

the catch is that real fills don't work like paper trading. on paper, you're basically getting filled instantly at the mid or even the bid, but in a live market those 0.05 contracts are going to have a penny-wide spread with zero volume sitting there. you'll sit with your order open while the price moves through your strike and suddenly you're in a position you never planned on holding. it's the classic "picking up pennies in front of a steamroller" trade. works great until the one day SPY rips 2% in the final hour and your short 780c is now worth a few hundred bucks a contract while you only collected a nickel.
u/Striking-Sea-9831 OP 1 3 days ago

That’s what I was thinking too. Maybe in demo it works but not in real life…
u/Striking-Sea-9831 OP 1 3 days ago

TradingView paper trading. I know options are delayed tho
u/thisturkeyisokthanks 1 3 days ago

Later in the day, if you try to buy or sell options way OTM that the price will obviously never reach, you will get a message saying no one is offering such contracts. But at the same time, at 2PM... it's possible but you may not get all filled immediately or at all. So your infinite money glitch is suddenly a lose half your order's value glitch like we all have more often than not
u/Long_Proposal7790 1 3 days ago

NOW it works all of the time. But one day…..
u/jarMburger 1 3 days ago

That’s the difference between paper and real trades. There won’t be enough liquidity to fill your large orders. At delta where you can get reasonable fills, there’s risk that the price will gap pass it, like today.
u/Striking-Sea-9831 OP 1 3 days ago

You’re right on liquidity. Didn’t check that on paper trade
u/filthimartini 1 3 days ago

Pennies in front of a steamroller. What happens when those catch delta and worse, gamma? Lol. Learn the greeks bud. Also paper trading is not real life. Go put some money on the line. Hope you get a fill. Then if you do, get steamrolled. Have fun!
u/AnyPortInAHurricane 1 3 days ago

one word no , not plastics margin https://preview.redd.it/aosjzaqypcuh1.png…
u/Trader_Dude_ 1 3 days ago

This strategy can work to make a little money, or a lot of money depending on how many contracts you sell, but the commissions will really eat into the 0.04 or whatever amount you make on each call. If you have success doing this you may scale it up, like 10, 20, 50, or 100+ contracts depending on how much buying power you have. I think i gave seen posts of 400 contracts. It will keep working until one day SPY makes a massive move in the final 20 minutes of the day before you close the calls, and you will have a very stressful day.
u/themanclark 1 3 days ago

Others mentioned the reality of fills in the real world but you should also look at how much you are really risking to do that. What if it did go up to 781? Or 782. Or 785.
u/ThanksDependent1001 1 3 days ago

Like everyone said you are collecting pennies in front of a steam roller and you said the deadly words “it’s impossible” to hit. Statistically the odds are in your favor for a few dollars but everything is possible. Look at what happened on Spy today at 2:17. One tweet sent the market up $3. You’d be short and stopped out and down thousands with your lots of contracts. You may win 9 out of 10 times but a loss will happen and what you are doing will end badly. TLDR: in a live account you’d also need large margin to support what you are paper trading so prob won’t work anyways.