Compression–Expansion Intraday 0DTE Strategy

Research Question

Intraday volatility tends to alternate between compression and expansion. Can compressed states be detected in real time, and the subsequent expansion traded directionally through 0DTE options, after honest cost and execution assumptions?

Architecture

The strategy is organized as three strictly isolated layers:

• Layer A — compression detection: identify low-volatility, coiled states using time-of-day percentile normalization so thresholds adapt across the session.
• Layer B — direction confirmation: confirm the breakout direction before committing.
• Layer C — option tradability and exit: decide whether the move is tradable in 0DTE options and manage the exit with cost-conservative assumptions.

Engineering Discipline

Bar semantics are explicit — signals act on CLOSED bars, never forming ones — and a 300+ test suite enforces safety invariants at the schema level. Keeping the three layers isolated prevents the common failure where a tuned exit silently rescues a weak entry signal.

Follow-up Work

• Complete the backtest engine and quantify expansion capture net of spread and IV crush.
• Compare compression detectors and verify they are not implicitly fitting to recent regime.
• Hold candidates to out-of-sample stability before any live consideration.