Weekly Options Analysis

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Weekly Options Analysis

Note: Weekly options are currently provided by the CBOE (Chicago Board Options Exchange) and therefore only available in the US options market.

The introduction of “Weekly” expiring options has given traders even more flexibility to explore in the world of options trading. “Weekly” expiring options behave exactly like Monthly expiring options and carry exactly the same rights and obligations as standard Calls and Puts, except that they only exist for eight days.

Trading interest in the “Weekly” options has surged exponentially since 2009, with average daily volume at the end of 2011 exceeding 400,000 contracts as based on the CBOE’s figures below:

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“Weekly” expiring options give traders access to a new world of short term trading strategies.

When Are Weekly Options Listed?

The CBOE “Weekly” options are introduced each Thursday and expire eight days later on Friday (with adjustments for holidays). New “Weekly” options are listed each week except the week when regular Monthly options are due to expire (the third Friday of each month). In this case, the regular Monthly expiring options act as the “Weekly” options for that week.

Option Traders have historically had 12 monthly expiration cycles within a year. The use of “Weekly” options now gives traders 52 expiration cycles per year. This flexibility can provide savvy traders with more targeted trading opportunities and can help investors take advantage of market events, such as earnings, government reports and important announcements.

Instruments with Weekly Options

“Weekly” options are constantly updated and changed and can be found on many different underlying securities, including indexes, various stocks and ETFs.

Some of the more popular Indexes with “Weekly” expiring options include:

  • CBOE Dow Jones Industrial Average Index (DJX)
  • Nasdaq 100 Index (NDX)
  • S&P 100 Index (OEX)
  • S&P 500 Index (SPX)

Popular ETFs for which “Weekly” options are available include:

  • SPDR Gold Trust ETF (GLD)
  • iShares Russell 2000 Index Fund (IWM)
  • PowerShares QQQ (QQQ)
  • SPDR S&P 500 ETF (SPY)

In addition, many popular stocks also have “Weekly” options available including:

  • Apple Corporation (AAPL)
  • Bank of America Corp (BAC)
  • British Petroleum (BP)
  • Google Inc (GOOG)

A complete list of up to date available “Weekly” options is available here: CBOE Weekly Options List

Weekly Option Trading Strategies

Weekly options can be used in any option strategies just like standard options: Straight Calls/Puts, Covered Calls, Collars, Married Puts, Vertical Spreads, Condors, Butterflies, etc.

For premium sellers who like to take advantage of the rapidly accelerating time-decay curve in an option's final week of its life, the “Weekly” options are a great fit. Traders now have 52 option expiries per year instead of 12 However, traders need to bear in mind that the premiums will be lower compared to the standard expiration options due to the shorter time value.

Advantages of Weekly Options

“Weekly” options offer something you can't accomplish with the Monthly options: The ability to make a very short-term trade on a particular news item or anticipated sudden price movement with high leverage. For example, suppose it's the first week of the month and you expect XYZ stock to move because their earnings report is due out this week. While it would be possible to buy or sell the XYZ “Monthly” options to capitalize on your theory, you would be risking three weeks of premium in the event that you're wrong and XYZ moves against you. With the “Weekly” options, you only have to risk one week's worth of premium. With the correct money management techniques, this will potentially save you money if you are wrong, or give you a large return if you are right.

There are many additional benefits to trading “Weekly” options:

  1. Option Selling Strategies now have 52 expiry cycles as opposed to 12 cycles per year. This gives Option Selling Strategies the ability to lock in profits on a weekly basis rather than waiting on a monthly basis where the trade has more time to move against the open position.
  2. Short Term and Day Traders now have an instrument that moves fast (high gamma) with the potential for large gains while mitigating market risk. This is due to the fact that many trades can be opened and closed during the course of a trading day which still have the potential to make large returns on risk capital.
  3. Due to their short life spans, large profits can be made when a trade moves in your favour. For straight directional trades using calls or puts, a small move in the underlying instrument will translate into large moves in the option premium and hence a large short term profit. Of course, the opposite is true if a trade moves against you.
  4. “Weekly” options are a great way to hedge short term market moving events against longer term positions. For example, traders can use “Weekly” options in combination with longer term positions to hedge off risk against major market moving announcements such as unexpected FOMC announcements.

Disadvantages of Weekly Options

There are a couple of negatives regarding “Weekly” options:

  1. If the trade moves against your analysis, there is rarely enough time to repair a trade by either adjusting the strikes or just waiting for some kind of recovery in the underlying security. This is due to the “Weekly” option’s short duration and rapid time decay as things tend to move a lot faster compared to the Monthly options.
  2. Although the open interest and volume are good, that is not necessarily true for every strike in the Weekly series. Some strikes will have very wide spreads and less liquidity which is not good for short-term and combination strategies.
  3. The well-known pinning effect (tendency of a stock’s price to gravitate towards the strike price at expiry) that takes place in Monthly options does not seem to happen as much or as strongly with the “Weekly” options. Therefore, trades may end up expiring different to where you expect them to. 

Weekly Option Analysis Help Topics

The following help topics have been developed to facilitate your use of this powerful tool:

In addition, the following Help topics also apply to the use of Weekly Options:

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