Top Three Technical Analysis Indicators for Trading Zero DTE Options

Introduction

• Presenters: Mike B Fury, Seth Freudberg, Garrett Bryan
• Topic: Top three technical analysis indicators for trading zero DTE options.
• Firm: SMB Capital, a proprietary trading firm in NYC
• Context: Growing interest in zero DTE options – options that expire the same day.

Importance of Identifiable Edge

• Identifiable Edge is crucial for sustainable success in zero DTE options trading.
• Identifies high-probability profit days.
• Four-part series to aid in identifying market clues.
• Market clues can signal significant trading opportunities.

Technical Indicators

1. Vold (Volume) Ratio

   • Ratio of volume flowing into up stocks vs. down stocks.
   • Indicator of market participation.
   • Key Values:
     • Ratio > 3: High potential of a trend day.
     • Ratio < 2: Likely chop range or rest day.
   • Example: April 6, 2020 – Cues had a 6:1 Vold indicating a strong trend day.

2. Advanced-Decline Line (AD Line)

   • Difference between number of up stocks and down stocks.
   • Patterns:
     • Pinning at +2000 or -2000 indicates strong trend days.
     • Helps validate Vold Ratio findings.
   • Example: CPI report day showing -2000 AD Line indicated a strong down day.

3. Tick Indicator

   • Difference between stocks trading on uptick vs. downtick.
   • Faster response to market changes; shows real-time sentiment.
   • Key Patterns:
     • Holding above/below zero indicates the dominant market sentiment.
     • Extreme ticks: consistent readings above +1000 or below -1000.
   • Example: February 21, 2023 - Ticks held below zero all day indicating strong bearish sentiment.

Trading Strategies

• Trend Days: Use indicators to identify and trade during high-participation, trend days.
• Market Internals: Assess underlying market strength and anticipate trend continuations.
• Zero DTE Options: Trade options expiring on the same day to maximize potential.
• Examples of Successful Trades:
  • April 6, 2020: NDX index options trade resulted in 677% return.
  • September 13, 2022: Down day zero DTE put trade resulted in a 353% return.

Important Insights

• Hierarchy of Indicators: Vold ratio forms the base, AD line shows trends next, and Tick is the most reactive.
• Platform Setup: Set up platforms to view these indicators (Vold ratio requires some customization).

Conclusion & Next Steps

• Enhanced Trading: Use market internals to enhance zero DTE options trading.
• Risk Mitigation: Trading options instead of stocks to manage risk better.
• Future Content: Upcoming video on constructing ETF filters for market conditions.

Additional Learning

• Free Workshop: Learn additional option strategies from professional traders.