The rise of zero-days-to-expiry options has produced an amusing mixture of excitement, moral panic, and bad intuition. Some people see 0DTEs as the new day-trading casino. Others see them as the purest possible form of volatility trading. Both views contain some truth, but neither is very useful on its own. The more interesting question is simpler: if you trade these things systematically, what actually happens?

Grigory Vilkov’s paper, 0DTE Trading Rules, is useful because it removes the storytelling. It looks at S&P 500 index options from September 2016 through January 11, 2024, and studies static rules that are executed every day and held to expiration. That is an important design choice. This is not a paper about clever intraday timing, discretionary gamma-scalping, or reacting to order flow. It asks a much more direct question: what is the unconditional distribution of common 0DTE trades?

The headline result is that 0DTE options do appear to contain a variance risk premium. In plain English, implied volatility tends to be high relative to what is subsequently realized, even at same-day horizons. That should not be shocking. The Variance Risk Premium (VRP) is well documented for longer-dated options and 0DTE options differ in degree, not in kind.

But the existence of a premium is not the same as the existence of a good trade. This distinction is where many conversations about 0DTEs go wrong. Traders hear “variance risk premium” and mentally translate it into “sell options and collect edge.” Vilkov finds that realized returns of individual options are extremely volatile and skewed. Some trades look profitable at the median, including buying deep in-the-money calls and selling out-of-the-money calls and puts, but the realized return distributions are so wide that the average returns of most strategies are not statistically significant.

That is exactly the kind of result traders should care about. A strategy can have a positive median outcome and still be hard to trade. It can win often and still be dominated by a handful of days. It can have a real premium and still be uneconomic after costs, slippage, execution errors, risk limits, and the psychological difficulty of taking large intraday losses.

This is especially true for 0DTEs because time is compressed. In a one-month option, the variance premium is spread across many days. There is time for realized volatility to average out. There is time to adjust, hedge, or exit. In a 0DTE option, everything happens immediately. The trade is not just “short variance.” It is short the realized path over the next few hours. One bad move, one data release, one Fed headline, one liquidity pocket, and the day’s P&L distribution changes shape.

This is the key practical point: 0DTE option selling is not a smooth carry trade. It is a trade with a small expected premium and a very large distribution around that premium.

That does not make it useless. It just means it must be understood correctly. If you sell an out-of-the-money 0DTE put every day, your edge, if it exists, is not the comforting edge of a high-Sharpe statistical arbitrage signal. It is the edge of being paid a little too much to absorb crash risk on a very short horizon. The problem is that the horizon is so short that tail events do not look like distant abstractions. They arrive before lunch.

The paper’s most interesting finding may be that much of the P&L of these strategies can be explained by realized skewness in the underlying index return. That is a concise way of saying that the shape of the intraday move matters enormously. It is not enough to know whether the market was volatile. You need to know whether the move was directional, abrupt, and asymmetric. The paper argues that predicting realized skewness is essential for building conditional 0DTE trading rules.

This is where the research becomes most useful for actual traders. The unconditional rule is only the baseline. “Sell 0DTE options every day” is not much of a strategy. It is a risk premium harvest with poor manners. The natural next step is conditional trading: when is the premium attractive enough, and when is the day’s distribution likely to be hostile?

That leads to a more sensible research program. You would want to know whether 0DTE selling works better after overnight gaps, during low realized-volatility regimes, away from macro events or after large morning moves. You would want to separate CPI days, FOMC days, NFP days, and ordinary days. You would want to know whether the market’s intraday trend and realized skew can be forecast well enough to matter. Most importantly, you would want to test whether the improvement survives transaction costs and realistic execution.

For buyers, the lesson is equally harsh. Lottery tickets are exciting because they occasionally explode in value. But buying very short-dated options requires being right quickly and by enough. Even if some long-option trades look good at the median, the general problem remains brutal: decay is not a theory in 0DTEs; it is the clock on the wall. You need excellent timing, direction, and magnitude. Being right is not enough.

Vilkov’s paper suggests that the phenomenon is real but fragile. There is compensation for selling same-day variance. There are also enormous tails, unstable means, and strong dependence on the realized shape of the index path. That is not a contradiction. That is exactly what a risk premium should look like when compressed into a few hours.

The right conclusion is neither “0DTEs are dumb gambling” nor “0DTEs are free money.” The right conclusion is more nuanced: 0DTEs may contain an edge, but the edge is small relative to the violence of the distribution. They are not a beginner’s product merely because they expire quickly. They are a professional product precisely because they expire quickly.

Disclaimer

This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting, or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact HTAA or consult with the professional advisor of their choosing.

Except where otherwise indicated, the information contained in this article is based on matters as they exist as of the date of preparation of such material and not as of the date of distribution of any future date. Recipients should not rely on this material in making any future investment decision.

Variance Risk Premium (VRP): The difference between the level of volatility implied by option prices and the volatility that is subsequently realized by the underlying asset.

Option Skew: The difference in implied volatility across option strike prices or maturities. Option skew reflects how market participants price different downside and upside risks and can provide insight into investor sentiment and demand for downside protection.