Weekly Strategies

Last modified 11:29, 5 Nov 2012

Weekly Strategies

To create a new analysis using Weekly options, click on the Options icon and select New Analysis from the menu. Type in the code for the underlying security and press Enter. This will load all of the options for that security, separated into Calls and Puts and displayed by expiry date and strike price.

You can reduce the number of options displayed through the options Filter, accessed by selecting a filter from the filters drop-down menu on the Function Bar. For further details, go to the Option Filters topic.

Option Chains for Weekly Options

If the selected underlying security has Weekly options, there should be an option chain series for both Calls and Puts displayed with the time to expiry being 8 days or less. The number of days to expiry will depend on the day of the week the analysis is being performed. For example, if an analysis is being performed on a Monday, the Weekly options will be displayed as shown below.

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The time to expiry is 4 days to the following Friday and trading strategies can be built around these Weekly options.

Introduction of New Weekly Options

The new series of Weekly options are introduced each Thursday and expire 8 days later on the following Friday. Your SOFTWARE will display the new options each Thursday as shown below.

weekConst2.png

The first option chain series will show the existing Weekly options to expiry on the current Friday in the week. The second option chain series will show the new Weekly options introduced for the following week’s trading. These new options will have an expiry time of 8 days and expire on the following Friday.

Introduction of Weekly Options Prior to Monthly Option Expiry

When viewing option chains in the week leading up to the Monthly option expiry (3rd Friday of the month), there will only be one series of Weekly options for the week. During these weeks, the Monthly options act as both the Weekly and Monthly options. An example is shown below where the option chain is displaying the option prices for the Monday prior to the third Friday of the month for April 2012. There is only one option series displayed which is both the Weekly and Monthly expiring options.

weekConst3.png

Finally, a quick way to identify the Weekly options in an option chain is to setup an Option Filter that only shows options that expire with 8 days or less.

Build a Strategy Using Weekly Options

Strategies can be based on a single option leg or combinations of options. The individual contracts for strategies with multiple options are referred to as legs of the strategy. The process for building an option strategy using Weekly options is exactly the same as building a strategy using Monthly options. The mechanics within Your SOFTWARE are the same. See section the Construct Strategies topic for more detailed information.

This section will focus specifically on building and analysing a position using Weekly options.

Building a Combination Strategy with Weekly Options

Options are an extremely flexible tool in the world of trading. Traders can use a combination of options to create many versatile trading strategies to trade a market bias while limiting risk simultaneously.

The following example will illustrate how to construct a simple option combination trade using both Weekly Call and Put options within Your SOFTWARE.

Suppose a company is due to announce a market moving event and the trader is expecting the stock price to move accordingly. Weekly options can be used to take a short term position on this type of market bias by buying Out-of-the-Money (OTM) Call options and buying Out-of-the-Money (OTM) Put options simultaneously.

To create the first leg of the trade, use the Weekly options and select an OTM Call option to be included in the strategy from the Calls table and press the Plus (+) key on the keyboard to Buy the option.

To create the second leg, use the Weekly options and select an OTM Put option to be included in the strategy from the Puts table and press the Plus (+) key on the keyboard to Buy the option.

weekConst4.png

By default, the option type will be set to a Buy to Enter setting with the option’s Ask quote set in the Price field and the option's Last Traded Date inserted into the Date field of the contract. All fields can then be manually modified according to the particular trade details.

The Trade section of the work-page shows the trade and risk details for the entire strategy, including the Days to Expiry, Trade Value, Profit/Loss, Options “Greeks” and Maximum Risk of the trade.

The Strategy Summary section of the work-page shows the details of each transaction that is included in the strategy. This also shows the cost of the total trade strategy.

The trade can now be Saved for day to day market monitoring or entered into the market if a linked OptionsXPress trading account has been setup.

Additional strategies can also be created and analysed as per the normal Monthly options. See the section Creating Additional Strategies in the Construct Strategies topic for more detailed information.

Strategy Graph for Weekly Options

Once the options strategy is complete, click on the Graphs tab to view and analyse the risk profile of the strategy that has been created.

Each strategy will have its own risk graph. For a Weekly options position, the risk profile will display a graph that has 8 days or less to expiry.

The display of the strategies on the graph work page is controlled by the Analysis menu.

weekConst6.gif

Select the Analysis display icon in the function bar to open the floating palette:

weekConst7.png

Display Strategies

All the existing strategies will be listed in the upper part of the palette, and each will be assigned a color.

All can be plotted at once, or the display can be limited to one or more at a time.

Select the graph butn_prichart.gif button for the strategies to be displayed, and un-select those to be hidden.

For more information on the display commands in this floating palette, go to the Option Analysis Strategy Palette topic.

Display Profit Lines

There are five profit lines displayed for each strategy at regular intervals from the current date to the first expiry date of the strategy.

If only one strategy is selected, its days from expiry lines will be colored. If more than one strategy is displayed, all the profit lines for each strategy will have profit lines of a decreasing shade of the color assigned to the strategy.

For Weekly options, the time to expiry will be 8 days or less. Thus, the Profit Lines may need to be adjusted to show more time lines than the default settings will display. The example shows there are only 3 days left to expiry and only the 3 day time line is shown.

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Additional time lines can be added by directly editing the Profit Lines time parameters in the Analysis Palette. For example, the screen below shows the addition of the 2 day and 1 day expiry time lines. In addition, the risk graph has also added the coloured lines to the risk profile and clicking on either of these lines will display the risk statistics associated with the time of expiry.

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The number of Profit Lines that can be displayed will depend on the number of days the Weekly options have left to expire. It is highly recommended that all time lines available until expiry be displayed and analysed when using Weekly options so that all risks can be duly considered before a position is taken. Traders need to bear in mind when using Weekly options, everything moves in a much faster timeframe and profits and losses are greatly magnified compared to using Monthly options.

The example below shows the effect of the Weekly options position 1 day after the entry date. The effects on the Profit/Loss and risk statistics can be clearly seen as shown by the red coloured line and the risk results.

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For more information on the lines and how users can over-ride the system defaults, refer to the Profit Lines and Time Analysis section of the Using Risk Graphs topic.

For more information on the Graph display in general, go to the Option Analysis - Graphs tabbed page topic.

Close a Strategy Using Weekly Options

Weekly option trading strategies are short term in nature. Therefore, the ability to close out an open trade analysis for the Net Profit/Loss figures will be a frequent task.

Your SOFTWARE is currently setup so that any open positions can only be closed out one leg at a time within the Option Analysis work pages. If a trading strategy consists of more than one option, then the Close process will need to be repeated until all trade legs have been closed out.

Close To Exit with Weekly Options

To close out a trade leg for its market value, highlight the option from the option data table and right mouse click to open the pop up menu. From the pop up menu, select the Close To Exit command. From the trade example, highlight the Call option leg and right mouse click to select the Close To Exit command.

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The Enter Transaction window will open and the trade details are automatically populated with the parameters to close out the trade.

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The Entry/Exit field will be set to Exit and grayed out. The Contracts field will default to the total number of contracts traded. The Price field will default to the Bid quote if a Sell trade is invoked or the Ask quote if a Buy trade is required.

Both the Contracts and Price fields can be edited.

Click on the Ok button and the software will automatically close out the number of contracts entered at the specified price. A new Exit Transaction will be added to the Strategy Summary table.

weekConst14.png

Repeat the same steps to close out all open legs that make up the trade strategy.

Once all contracts in a trade are closed out, the Net Position will be zero and the Net Profit/Loss figures will be displayed. The example trade figures are shown below after both the Call and Put legs have been closed out.

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Clicking on the Graphs tab will show the risk profile with a Vertical line at the Net Profit/Loss figure. In addition, the Trade and Strategy Summary windows will show the overall trade statistics for the closed position.

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In this case, the example trade made a net profit of $1312 after 1 day. This represents a net return of 79% ($1312 / $1660).

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