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White Paper: The “Sell and Hold” Strategy – Capturing Daily Income with 0DTE SPX Credit Spreads

Date: May 16, 2025

Abstract

This white paper details the “Sell and Hold” strategy, a systematic approach designed to generate consistent daily income through the selling of 0DTE (Zero Days to Expiration) credit spreads on the S&P 500 Index (SPX). The strategy focuses on entering trades shortly after the market opens, selecting strikes with a specific delta range (20-25), aiming for a defined credit target ($1.10-$1.30 per spread), and holding these positions until the market closes to capitalize on time decay. This paper will thoroughly examine the strategy’s mechanics, execution protocols, inherent risk management features, and distinct advantages, supported by practical examples and suggestions for visual aids.

1. Introduction: The Landscape of 0DTE SPX Options

The proliferation of options contracts that expire on the same day they are traded (0DTE options) has significantly altered the landscape for short-term traders. The S&P 500 Index (SPX) stands out as a preferred underlying asset for many 0DTE strategies due to several key characteristics:

High Liquidity: Ensures tight bid-ask spreads and the ability to enter and exit trades efficiently.
Cash Settlement: SPX options are cash-settled, meaning there is no physical delivery of an underlying asset at expiration. This eliminates the complexities and risks associated with the assignment of shares.
European-Style Exercise: These options can only be exercised at expiration, not before. This feature provides certainty for option sellers regarding the timing of potential exercise.

0DTE options are acutely sensitive to time decay (Theta), as their entire extrinsic value (time value) must diminish to zero by the end of the trading session. This rapid decay, particularly in the final hours of trading, presents a distinct opportunity for option sellers. The “Sell and Hold” strategy is precisely engineered to leverage this accelerated time decay and the defined-risk nature of credit spreads to pursue consistent daily income.

2. The “Sell and Hold” Strategy: Core Mechanics

The “Sell and Hold” strategy is a directional options selling technique focused on systematically capturing premium from 0DTE SPX credit spreads. Its fundamental aim is to achieve regular daily income through trades that offer a high probability of success over a short duration, all while maintaining strictly controlled risk.

2.1. Objective

To capture consistent daily income by methodically selling SPX 0DTE credit spreads and holding them for the entirety of the trading day, thereby maximizing the benefits of time decay while adhering to predefined risk parameters.

2.2. Timing

Trades are initiated shortly after the U.S. equity market opens, typically around 9:30 A.M. EST. This timing allows the trader to assess the initial market direction, sentiment, and volatility before committing to a position.

2.3. Instrument

The strategy exclusively utilizes 0DTE options on the SPX (S&P 500 Index).

2.4. Position Type: Credit Spreads

A credit spread is an options strategy involving the simultaneous sale of one option and the purchase of another option of the same type (both calls or both puts) on the same underlying asset, with the same expiration date but different strike prices. The option sold is more expensive (closer to the money or at-the-money) than the option bought (further out-of-the-money), resulting in a net credit received by the trader.

Put Credit Spread (Bull Put Spread): Implemented with a neutral to bullish outlook on the SPX. The trader sells a higher-strike put option and simultaneously buys a lower-strike put option. The goal is for the SPX to remain above the strike price of the sold put option through expiration.
Call Credit Spread (Bear Call Spread): Implemented with a neutral to bearish outlook on the SPX. The trader sells a lower-strike call option and simultaneously buys a higher-strike call option. The goal is for the SPX to remain below the strike price of the sold call option through expiration.

The decision to deploy a put credit spread or a call credit spread is based on the intraday market analysis.

2.5. Execution Details

2.5.1. Market Analysis

A concise intraday analysis of the SPX is performed at the market open to establish a directional bias for the day (e.g., bullish, bearish, or range-bound). This analysis may incorporate factors such as:

Pre-market futures movement.
Key technical levels (support, resistance, pivot points).
Opening price action and volume.
Overnight news or economic data releases.
Based on this assessment, the trader selects the appropriate type of credit spread.

2.5.2. Delta Target: 20-25

The short strike of the credit spread (the option being sold) is chosen to have a delta between 0.20 and 0.25 (often referred to as 20 to 25 delta) at the moment of trade initiation.

Delta is a primary option Greek that measures the expected change in an option’s price for a $1 change in the price of the underlying asset. Crucially for this strategy, delta also serves as an approximate probability of the option expiring in-the-money (ITM).
A 20-25 delta option implies an approximate 20-25% chance of expiring ITM, and conversely, a 75-80% theoretical probability of expiring out-of-the-money (OTM). Expiring OTM is the desired outcome for the option seller.
This delta range offers a strategic balance: it provides a high probability of the trade being profitable while still offering a reasonably attractive premium. Selling options with significantly higher deltas would increase the premium but lower the probability of success. Selling options with much lower deltas would increase the probability of success but yield minimal premium, potentially creating an unfavorable risk/reward profile.

2.5.3. Credit Goal: $1.10 – $1.30 per Spread

The strategy aims to collect a net credit of approximately $1.10 to $1.30 per spread. Since SPX options have a multiplier of 100, this translates to $110 to $130 per contract.

This credit target is set to ensure that the potential reward is justifiable for the risk undertaken. The actual credit achievable will vary based on factors like the prevailing market volatility (e.g., VIX levels) and the width of the strikes chosen for the spread. For instance, on a 10-point wide SPX spread, collecting a $1.20 credit means the maximum risk is $8.80 ($10.00 width – $1.20 credit) to make a potential $1.20.

2.5.4. Holding Period: Until Market Close

A defining feature of this strategy is that positions are typically held until the market closes (4:00 P.M. EST for SPX options). The primary rationale for this approach is to allow time decay (Theta) to exert its maximum effect on the value of the options sold.

Theta quantifies the rate at which an option’s value erodes as time passes, assuming all other market factors remain unchanged. This decay accelerates exponentially as an option nears its expiration, a phenomenon that is most potent on the expiration day itself for 0DTE options.
By holding the position until the close, the strategy aims to capture the full impact of this accelerated time decay. If the short strikes of the credit spread expire OTM, the trader retains the entire net credit received at the inception of the trade.

(Chart/Diagram Suggestion 1: Theta Decay Curve for 0DTE Options)

Description: A line graph illustrating the accelerated rate of theta decay. The X-axis would represent time (e.g., hours remaining in the trading day from 9:30 A.M. to 4:00 P.M. EST), and the Y-axis would represent the extrinsic value of an option. The curve should show a steep decline, especially in the final hours, emphasizing why holding until close is integral to the strategy.

2.6. Risk Management

Effective risk management is paramount and is structurally integrated into the “Sell and Hold” strategy.

Defined Risk: The credit spread structure inherently limits the maximum potential loss on any trade.

For a Put Credit Spread (e.g., Sell SPX 5300 Put / Buy SPX 5290 Put for a $1.20 credit):
Max Loss = (Width of Spread – Net Credit Received) * 100
Max Loss = ($10 – $1.20) * 100 = $8.80 * 100 = $880 per spread.
For a Call Credit Spread (e.g., Sell SPX 5350 Call / Buy SPX 5360 Call for a $1.20 credit):
Max Loss = (Width of Spread – Net Credit Received) * 100
Max Loss = ($10 – $1.20) * 100 = $880 per spread.

Maximum Profit: The maximum profit is limited to the net credit received when the position is established. This is achieved if the spread expires with both options OTM (i.e., the short strike is not breached).

Using the $1.20 credit example: Max Profit = $1.20 * 100 = $120 per spread.

Profit-to-Risk Ratio: The strategy operates with a known profit-to-risk ratio. For a $1.20 credit on a 10-point wide spread:

Profit Potential: $1.20
Risk Exposure: $8.80
Ratio: $1.20 / $8.80 ≈ 1:7.33 (Profit : Risk)
While this ratio may appear asymmetric, the strategy’s viability hinges on the high probability of success (75-80% theoretically) associated with selling 20-25 delta options. The strategy relies on a high win rate to achieve long-term profitability.

No Overnight Risk: Since all positions are initiated and expire (or are closed) on the same trading day, the strategy completely avoids exposure to adverse overnight market movements, gap risk, or unforeseen news events occurring outside of market hours.

3. Advantages of the “Sell and Hold” Strategy

High Probability of Success: The selection of short strikes within the 20-25 delta range provides a statistically favorable setup, with a theoretical 75-80% chance that the short option will expire out-of-the-money.
Rapid Income Realization: Profits (or losses) are determined within a single trading day. This quick turnaround allows for the potential for rapid feedback and, if consistently successful, efficient compounding of capital.
Maximizes Theta Decay: The strategy is explicitly designed to benefit from the accelerated time decay characteristic of 0DTE options, especially by holding until the close.
Defined and Controlled Risk: The credit spread structure ensures that the maximum potential loss for each trade is known at the outset and is strictly limited.
Elimination of Overnight Risk: This removes a significant variable and source of stress for many traders.
Simplified Intraday Management: The “hold until close” approach minimizes the need for active intraday trade management decisions (e.g., when to take profits or cut losses), which can reduce emotional trading and decision fatigue. This assumes the trader is comfortable with the predefined maximum risk.

4. Illustrative Trade Examples

Assume the SPX is trading around 5350, and standard market volatility conditions prevail. All examples use a 10-point wide spread.

Example 1: Selling a Bull Put Spread (Neutral to Bullish Intraday Outlook)

Timing: 9:35 A.M. EST
Market Analysis: The trader observes early market strength or anticipates that the SPX will find support and remain above key near-term levels throughout the day.
SPX Index Price: 5352
Action: Sell a 0DTE SPX Put Credit Spread.

Sell 1 Contract: SPX 5320 Put (Delta approximately 0.22 or 22) for a premium of $2.50
Buy 1 Contract: SPX 5310 Put (Lower strike for protection) for a premium of $1.30

Net Credit Received: $2.50 (sold put) – $1.30 (bought put) = $1.20 per spread (or $120 total credit).
Spread Width: 10 points (5320 Strike – 5310 Strike).
Maximum Profit: $1.20 * 100 = $120 (Achieved if SPX closes at or above 5320).
Maximum Risk: ($10.00 width – $1.20 credit) * 100 = $8.80 * 100 = $880.
Breakeven Point at Expiration: Short Put Strike – Net Credit = 5320 – $1.20 = 5318.80.

Scenario Outcomes for Example 1:

Scenario A (Winning Trade – Max Profit): SPX closes at 5360.

Both the 5320 Put and 5310 Put expire worthless (OTM).
Profit = Net Credit Received = $120.

Scenario B (Losing Trade – Partial Loss): SPX closes at 5315.

The short 5320 Put is ITM by 5 points (5320 – 5315). Its value at expiration is $5.00.
The long 5310 Put expires worthless (OTM).
The spread value at expiration is $5.00.
Loss = Spread Value at Expiration – Net Credit Received = $5.00 – $1.20 = $3.80 per spread (or $380 total loss).

Scenario C (Losing Trade – Max Loss): SPX closes at 5305.

The short 5320 Put is ITM by 15 points. The long 5310 Put is ITM by 5 points.
The spread is worth its full width of 10 points at expiration.
Loss = Maximum Risk = $880.

(Chart/Diagram Suggestion 2: Bull Put Spread Profit/Loss Diagram)

Description: A standard options P/L diagram. X-axis: SPX Price at Expiration. Y-axis: Profit/Loss.

A horizontal line indicating Max Profit ($120) for SPX prices ≥ 5320.
A downward sloping line from (5320, $120) to (5310, -$880).
A horizontal line indicating Max Loss (-$880) for SPX prices ≤ 5310.
Clearly mark the Breakeven Point (5318.80).

(Chart/Diagram Suggestion 3: Hypothetical SPX Intraday Chart for Bull Put Example – Winning Scenario)

Description: A 1-minute or 5-minute candlestick chart of SPX for one trading day.

Mark the trade entry point (around 9:35 A.M. EST, SPX at 5352).
Illustrate a hypothetical price path where SPX trends upwards or sideways but remains comfortably above the 5320 short put strike, eventually closing near 5360.
Clearly label the short strike level (5320) on the price axis.

Example 2: Selling a Bear Call Spread (Neutral to Bearish Intraday Outlook)

Timing: 9:40 A.M. EST
Market Analysis: The trader observes early market weakness or anticipates that the SPX will encounter resistance and fail to rally above key near-term levels.
SPX Index Price: 5348
Action: Sell a 0DTE SPX Call Credit Spread.

Sell 1 Contract: SPX 5380 Call (Delta approximately 0.24 or 24) for a premium of $2.65
Buy 1 Contract: SPX 5390 Call (Higher strike for protection) for a premium of $1.45

Net Credit Received: $2.65 (sold call) – $1.45 (bought call) = $1.20 per spread (or $120 total credit).
Spread Width: 10 points (5390 Strike – 5380 Strike).
Maximum Profit: $1.20 * 100 = $120 (Achieved if SPX closes at or below 5380).
Maximum Risk: ($10.00 width – $1.20 credit) * 100 = $8.80 * 100 = $880.
Breakeven Point at Expiration: Short Call Strike + Net Credit = 5380 + $1.20 = 5381.20.

Scenario Outcomes for Example 2:

Scenario D (Winning Trade – Max Profit): SPX closes at 5375.

Both the 5380 Call and 5390 Call expire worthless (OTM).
Profit = Net Credit Received = $120.

Scenario E (Losing Trade – Max Loss): SPX closes at 5395.

The short 5380 Call is ITM by 15 points. The long 5390 Call is ITM by 5 points.
The spread is worth its full width of 10 points at expiration.
Loss = Maximum Risk = $880.

(Chart/Diagram Suggestion 4: Bear Call Spread Profit/Loss Diagram)

Description: A standard options P/L diagram. X-axis: SPX Price at Expiration. Y-axis: Profit/Loss.

A horizontal line indicating Max Profit ($120) for SPX prices ≤ 5380.
An upward sloping line from (5380, $120) to (5390, -$880).
A horizontal line indicating Max Loss (-$880) for SPX prices ≥ 5390.
Clearly mark the Breakeven Point (5381.20).

5. Further Considerations and Nuances

Impact of Implied Volatility (Vega):

This strategy, being net short options premium, generally benefits from stable or decreasing implied volatility (IV) after trade entry. A significant spike in IV intraday could temporarily increase the spread’s market value (mark-to-market loss) even if the SPX hasn’t breached the short strike. However, for 0DTE options, the impact of Theta (time decay) and Delta (price movement) is usually more dominant than Vega (volatility). The initial credit received will already reflect the market’s IV expectation at the time of entry.

Assignment Risk (SPX Specifics):

As mentioned, SPX options are European-style and cash-settled. This means there is no risk of early assignment of shares before expiration. If the options expire ITM, the settlement is handled in cash based on the difference between the strike price and the official SPX settlement price. This simplifies expiration mechanics considerably compared to American-style equity options.

Trade Management Flexibility (Deviations from “Hold”):

The core “Sell and Hold” strategy advocates holding until expiration to capture maximum Theta. However, traders may develop variants. For instance:

Early Profit Taking: If a significant portion of the premium (e.g., 50-80%) is captured quickly due to favorable market movement, a trader might choose to close the position early to lock in profits and reduce further risk.
Stop-Loss Rules: Some traders might implement a mental or actual stop-loss if, for example, the SPX touches the short strike or the spread’s value reaches a certain percentage of its maximum loss.

It is crucial to note that such adjustments represent deviations from the foundational “Sell and Hold” principle and would require their own rigorous backtesting and rule definition.

Capital Requirements and Margin:

Selling credit spreads requires a margin account. For cash-settled index credit spreads like those on SPX, the margin requirement (or buying power reduction) is typically equal to the maximum risk of the spread (i.e., Spread Width – Net Credit Received). In our 10-point spread example with a $1.20 credit, the margin would be $880 per spread.

Transaction Costs (Commissions and Fees):

Trading costs, including commissions per contract and other fees, can significantly impact the net profitability of any high-frequency or multi-leg options strategy. These costs must be factored into any performance analysis or expectation setting.

6. Conclusion

The “Sell and Hold” 0DTE SPX credit spread strategy presents a structured and systematic methodology for traders seeking to generate daily income from the options market. Its strength lies in its focus on high-probability trades (achieved through disciplined 20-25 delta strike selection), a defined credit target, and the strategic exploitation of the accelerated time decay inherent in same-day expiring options. The clearly defined risk parameters of credit spreads, coupled with the elimination of overnight market exposure, offer significant advantages in managing trading capital and psychological stress.

Consistent success with the “Sell and Hold” strategy, as with any trading approach, demands unwavering discipline in execution, strict adherence to predefined rules, a solid understanding of intraday SPX market dynamics, and robust risk management protocols. While the high probability of individual trades provides a statistical edge, traders must be prepared for and accept occasional losses, which are inherently capped by the spread’s structure. This strategy is particularly well-suited for traders who are comfortable with intraday market exposure, possess the patience to let trades unfold until the close, and aim to systematically harvest premium from the options market.

7. Disclaimer

This white paper is provided for informational and educational purposes only. It should not be construed as financial advice, a solicitation, or a recommendation to buy or sell any security or to adopt any specific trading strategy. Options trading involves a high degree of risk and is not suitable for all investors. Individuals should diligently consider their financial situation, investment objectives, and risk tolerance before engaging in options trading. Past performance is not indicative of future results. The S&P 500 Index (SPX) and 0DTE options are complex financial instruments. It is strongly recommended that you consult with a qualified financial advisor and conduct your own thorough research before making any investment or trading decisions. 0DTE.COM assumes no responsibility for any trading losses incurred by any individual acting on the information provided herein.