Trading Weekly Options
Weekly options were introduced in early 2010 and are growing in popularity.
Each Thursday a new series of weekly options is introduced which expire the following Friday and with that the ability to further expand your option trading choices.
Right now weekly options are on the popular indexes, ETFs, and a majority of the popular liquid stocks.
You can reference CBOE Weekly website for the updated list of Weekly Options offered.
Why buy weekly options ?
Weekly options are great for income options traders looking to have constant time decay.
For example, the popular options strategy of covered call writing(selling a call against your stock position) you would normally do 1x each month as a new monthly series of options is introduced but now you can do it every week with weeklies.
From what I have seen and read though, by writing options every week vs. monthly you can 2x your income(it’s not 4x you income just because of 4 weeks).
Weeklies have higher gamma risk due to their short expiration period so that means the are more susceptible to moves in the underlying stock especially if trading close to the money strike prices.
Also understand that premiums are lower for weekly options than monthly options since they are expiring quicker and therefore are pricing in lower volatility risk for weekly options vs monthly options.
Realize though that since weeklies have a short time until expiration you really can only find decent premium selling near the money options so you have to evaluate strategies a little differently than you would with monthly options.
With monthly option there is more time premium in farther out of the money strikes which allows you more cushion(wider profit tent) when executing something like an iron condor or double diagonal spread.
Generally, weeklies have the largest time decay over the weekend before their expiration week and the Thursday night before expiration so those are good time to position your trades in anticipation of that decay.
During expiration day there are articles that have identified the highest time decay occurs after the first 90minutes of trading and then there is a lull and then decay picks up quickly in the last couple hours.
For reading about expiration day trading and expiration strategies like “Pinning” then there is a great FREE article at SFO(Stocks,Futures&Options) magazine with Jeff Augen (along with a webinar about the article). It’s free to sign up for SFO magazine.
Jeff Augen also has some popular books about trading expiration day which if you get good at then weeklies allow expiration day trades every week now. Here is link to Amazon with a listing of Jeff Augen’s most popular books.
Popular Weekly Options Strategies
- Selling covered calls: Selling near term weekly calls while being long actual underlying stock or being long a far in the money call that trades closely with the price moves of the underlying stock(ie- over 80delta) it tracks. This has been successful trade with stocks like AAPL or NFLX that have lots of time premium each week for selling against long stock or far in the money long calls that expire at a later day than the short weekly call option.
- Pinning trades on expiration day like selling straddles, out of money put or call verticals, ratio trades,etc…
- Selling out of money put spreads(or naked puts) on stock you wouldnt mind being long if the stock was put to you. If stock is put to you from the short put you sold then once you are long the stock(if you have the margin or capital available to be long the stock) you can start selling near the money calls against your long stock until its called away from you. Then resell puts again until the stock it put to you. The risk with this strategy is if the stock gaps down far with either short the put options or long the stock but if the market get risky you can always buy a hedge like a long put for protection.
- Calendar trades selling near term weekly to pay for your long longer term call.
Those are the main trades.
You can always do lower probability trades or success like Iron condors, At the money Butterfly spreads,etc….but you want the stock to stay where it is on those trades so look for underlying to be in a tight trading range
Hope this post was useful as I only touched upon the key aspects of weekly options.
Preston James Weekly Options Windfall basically covered the above information.
Much of the Weekly Options Windfall course is about expiration pinning trades which you need to treat with a lot of caution as you can have 5-10 points between your spread strikes and usually offering about a 10:1 risk/reward on those trades. They can work but you better to on top of those trades all day watching them like a hawk or you can lose a ton of money on pinning expiration trades. Some people in the course got crushed on those trades(multiple 5figure losses). Overall, I didn’t think the Weekly Options Windfall course was worth it.
3/20/12 Update – I did hear that Weekly Options Windfall updated their course so maybe it has improved but I haven’t reviewed the changes.
** For various overviews on popular options courses, take a look at the Options Trading Course reviews page which gets routinely updated. **
For more information about weeklies, visit Weekly Options category page