Weekly options are an exciting addition to the financial markets in recent years and can provide a lot of trading choices for active investors.
If you are new to options, then understand that options can:
- Protect your investments against a decline in market price.
- Allow you to buy investments at a lower price .
- Increase your income on current investments.
- Benefit from a stock’s rise or fall without owning the stock.
- Duplicate a stock’s move with a much smaller investment.
This is a long post but I will try to cover all the essentials to understanding what you need to know about weekly options.
Weekly Options Trading Introduction
Weeklies were introduced on select individual stocks and indexes around 2010 and have dramatically expanded to a wide range of stocks, ETF’s, futures, and other financial instruments in recent years.
Weekly options trading has become popular in recent years as more investors and option traders realize the advantage that they offer for various trading strategies.
“Weeklys” are issued each Thursday for expiration on the following Friday (note- some cash settled Index options settle on Thursdays).
Traditional monthly options expire on the third Friday of every month so there isn’t a weekly option chain issued for that correlating monthly expiration week. Therefore, weekly options really are just issued for the 1st, 2nd, and 4th Friday expiration of each month.
If the expiration Friday is a holiday then the options will expire on Thursday instead. Also it is important to point out that different securities have different expiration days.
Your brokerage platform will provide all of the available options chains and their respective expiration date.
You can take advantage of the rapid time decay of weeklies by implementing popular option strategies each week vs. Monthly options that experience rapid time decay only 1 week a month.
The main advantage of having weeklies is that they add to your ability to adjust your options positions(especially for income traders) every week and take advantage of faster time decay than you are able to with only monthly options.
Option prices are comprised 2 components:
Extrinsic Value – “Time value” which reflects the non-Intrinsic value of the option.
Intrinsic Value – A premium value derived from how much the option is in the money.
For example, XYZ stock is priced at $50. An XYZ call option with a $45 strike is priced at $7.00 then that means there is $5.00 in Intrinsic value and $2.00 in Extrinsic “Time” value.
List of Weekly Options
Each Wednesday the CBOE will release a list of options for the following Fridays expiration. This occurs every week except for the third week when monthly options expire instead of week options.
You brokerage platform will show all available options chains for a security or you can always reference the list of stocks with weekly options and the Chicago Board Options Exchange website.
Risk of Weekly options
Obviously, with weekly options you are always dealing with expiration week each week so time decay is rapid and you likely won’t have time to roll a position profitably if it moves too far in the money on you.
Make sure you have an understanding of exactly when your options settle because certain index options will stop trading on Thursday but expire the next morning which has the potential to move against you overnight for settlement prices. See chart below comparing how the various financial instruments work.
Weekly options expiration table
|Weeklys Classes by type||New Weekly series listed||Last Trading Day||Expires On||Settles||Exercise Style|
|Indexes such as:|
|S&P 500 Index
|Thursday A.M.||Friday||Friday||Friday P.M.||European
|Dow Jones Industrial Average
|Thursday A.M.||Thursday||Friday||Friday A.M.||European
|S&P 100 Index (American)
|Thursday A.M.||Friday||Friday||Friday P.M.||American
|S&P 100 European-style
|Thursday A.M.||Friday||Friday||Friday P.M.||European
|Exchange Traded Funds such as: SPY, IWM, QQQQ, USO, GLD and others*||Thursday A.M.||Friday||Friday||Friday P.M.||American (Physically settled)|
|Equities such as: AAPL, BAC, BP, F, GOOG and others*||Thursday A.M.||Friday||Friday||Friday P.M.||American (Physically settled)|
NOTE: Make sure you have a general understanding of how option prices work. Read through my article on weekly options delta and option Greeks(Delta/Theta/Gamma/Vega) to learn more.
Weekly Options Strategies
Generally you will see faster time decay over the weekend and on the evening before expiration so you should keep those times in mind when positioning your trades.
Directional trading strategies like buying calls or puts, debit spreads,etc… allow you to benefit from the leverage of options without having to pay up for as much time premium that you would traditionally with monthly options.
If you are going long weeklies for a short term trade then you generally want to only deal with in-the-money options because owning an out of the money options during expiration week will see rapid time decay and a decrease in delta.
Rapid time decay means that if the stock doesn’t move fast enough in the direction that you desire that week then you can lose money even if the stock moves in the direction you wanted.
Income trading strategies is probably a more popular strategy with weeklys where you are selling weekly options to collect the premium and benefiting from the rapid time decay of weekly vs. monthlies. Popular income strategies include covered calls, credit spreads, iron condors, etcetera.
With income strategies you are betting that the stock will expire out of the money from your short options so you can keep the entire option premium. If you are more focused on selling options for income generation then you need to match your strategy with the strike price and goal of your trade.
Option Strategy Examples
Put Credit Spreads / Call Credit Spreads
Credit spreads using puts or calls are a popular options strategy that allows you to short one option and buy a further out of the money options in the same expiration period.
The short option is closer to the money(existing stock price) than the long option so you collect more premium on the short option than the you pay for the long option. This difference generates a credit in your account.
If the stock expires without moving past your short option strike price then you let the spread expire and keep the premium.
You want rapid time decay on credit spreads and a short expiration period so that the stock has less time to move past your short strike. Weekly options allow for this rapid time decay.
Credit spreads also involve a more advanced strategy called an Iron Condor which combines a credit put spread and a credit call spread.
For More Details on Credit Spreads, See this post
Calendar Spread (also known as horizontal spreads) is when you buy a call(or put) that expires in a farther out month and sell a near-term weekly call(or put) at the same strike as your farther out long call(put).
You can keep selling a new weekly call(put) each week and the premiums collected each week can be used to pay your long call(put) in the out month.
For example if you if you like a stock that you think will move up over time you could buy far out call that expires in 6 months and sell near term weekly call against that long call every week to collect premium.
A common strategy with weekly calendar spreads is to adjust the strike price of the short call each week when the new weekly options come out depending on where the stock is.
If the stock hasn’t moved then you can keep selling the same call at the same strike price.
If the stock moves around then you can adjust your calendar spread each week by creating a “diagonal spread”. A diagonal spread is when your short call strike price is different than your long call strike price.
Covered Call Writing
Covered call writing is a popular options strategy where you own shares in a stock and sell calls against those shares to collect the option premium from those sold calls.
If the stock closes below the strike price on your short call then those calls expire worthless. You can sell(“write”) new calls each week now with weekly options to generate an income on that stock.
The disadvantage is that selling calls on your long stock limits the upside to your stock if the stock rises above the strike price of your calls.
Weekly options allow for the fast time decay that you want with covered call writing and allows you the flexibility to sell new calls every week and also to adjust strike prices on the calls each week if the stock moves.
Covered calls works great for non-volatile stocks or stocks that are trading in a range.
For more details on Weekly Covered calls, see this post.
A common trade for people who own large amounts of company employee stock that they can’t sell or if you have a large capital gain and just want to “lock” a stock into a range to reduce risk.
To execute a collar trade for a stock you own, you would sell weekly calls each week to offset the cost of buying long-term protective puts on the stock.
The put acts like insurance against a drop and the calls would cap your upside but you could essentially lock your stock into a price range.
The nice advantage of weeklies is that you can play expiration every week and if a certain week is too volatile or doesn’t match your strategy then you can just skip a week vs. monthly options where you have to wait each month for expiration week to collect the rapid time decay.
Additional Thoughts on Weekly Options
Here are some additional summary thoughts that come to mind after my experience trading weekly options –
From what I have seen and read, by writing options every week vs. monthly you can 2x your income(it’s not 4x your income just because of 4 weeks).
Weeklies have higher gamma risk due to their short expiration period so that means they 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.
You must understand that since weeklies have a short time until expiration you really can only find decent premium selling closer to the money options, so you have to evaluate strategies a little differently than you would with monthly options.
For example, for option income traders (meaning you sell options for premium credit) you should be more aware of where a stock is on a chart when you trade weekly options vs. monthly options. Most people who trade monthly options will base their option selling based on probabilities because the options are farther out of the money. With weekly options you don’t have as much time until expiration and are more at risk selling closer to the money options so you understand support and resistance to increase your odds of success.
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 advanced expiration strategies like “Pinning” then there is a good free article at SFO(Stocks,Futures&Options) magazine with Jeff Augen (along with a webinar about the article).
You can see some older videos on Youtube that I did about Weekly options to learn more (sorry the audio quality wasn’t great). I also linked to other posts throughout this article that I wrote about specific weekly options strategies.
Weekly options are great for income options traders looking to have constant time decay and also for directional traders that want lower cost bets on rapid moves.
The key things to understand with weekly options is that with the shorter time to expiration then the farther out of the money options have less likelihood of moving in to the money and therefore the market prices that factor with lower premiums for farther out of the money options vs. monthly options.
In other words, with weekly options you are going to have to deal with closer to the money strike prices which results in higher risk of option prices moving against you.
Overall, weekly Options are a great instrument if you understand the options strategies that you are implementing.
** For various overviews on popular options courses, take a look at the Options Trading Course reviews page which gets routinely updated.**
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