0 DTE options is where the actions are nowadays. It steamrolls you and then it's gone leaving you with huge losses. Hard stops mean nothing if the prices gap through them.
So what happens when the adverse PA takes out several levels of strikes all at once and is showing no sign of stopping...?
So each strike we sell we have preset stop loss levels . If the move is not large enough to hit portfolio stop loss, we sell further straddle, and strangle. For instance, say straddle is 1 percent start of day. If market moves 0.5 percent then you create a new straddle at 100.5, Sometime you can sell more calls than put and vice-versa based on how premium and price action, oi buildup . We do this on index only .max index historically has moved 3-5 percent intraday and we booked 2 percent loss those days. Also it's path dependent, sometimes range is high but movement slow which is easy to manage. Worst days are quick unexpected sudden moves . This style of trading is exhaustive , you can end up making 20-40 adjustments.
You are probably safe for now.. despite all the hype about 0dte options potentially causing a volmageddon- there's nothing right now to indicate this is the case. If anything, the nature of the 0dte flows contributes to a net positive-gamma effect. What I will say here- 95% of the big systematic short volatility players have pivoted to 7dte and inside. And they don't close/roll/defend- this may not be the best approach for you, since they are scaling bets, trading daily across multiple strikes and maturities. But their behavior has effectively dampened realized volatility in meaningful ways over the last 1-2 years
I still don't understand how 0 DTE options can have so high of volatility. They are only expiring in several hours so their theta should be through the roof since it's negatively related to time until expiration i.e. the smaller the amount of time to expiration the larger the theta, how can their gamma become so high that it overtakes theta and how can the theta be so low that one can still earn so much premium to justify the risk? Something is wrong. It does not make sense.
Most days realized vol is lower than implied vol.and people who are long such options make money once in a while when sudden rallies or crash happen. If you have a system defined loss limit for such days overall you will be net positive in long run
There is slippage sometimes which can cost you few more points of loss than planned, when sudden spikes happen. Many algo can optimize that , they wait for a sec or two compare market price and then execute to minimise slippages. The market is really deep and enough liquidity to get out. However I would never try this with stock options as liquidity is much lower