Hidden Risk to 0DTE Trading (Preview)

By Lawrence G. McMillan

We all know there are risks to 0DTE trading – mostly the swift time decay, changing delta and gamma, and potentially violent price moves by the underlying.  But serious option traders are not deterred by those things; they can avoid most of them by merely paying attention.  It then becomes a matter of how much time do you want to devote to a daily trading strategy.  But this week, I read about a different kind of risk – one that I was not aware of, but which is apparently very real.  To give credit where it’s due, the following article is based on this article by Cabot Wealth.

This risk applies to retail traders who are trading 0DTE options (although this really applies to any expiring option): if your account does not have enough equity to withstand an exercise of the long options you hold, your broker can sell out those options near the end of the day, without your specific approval.  So, if there is a last-minute move in the market, you might not participate, because your broker might have already sold your position...