Weekly options or "Weeklys" have rapidly grown in popularity since they began to be offered on individual stocks and exchange traded funds in 2010. Originally weekly options were only offered on the S&P 500 (SPX) and S&P 100 index (OEX) but the Chicago Board of Options (CBOE) started rolling out new offerings on specific index ETF's and well known stocks.
Many stock investors are still only familiar with the traditional monthlies that expires each month so they are missing out the benefits that weeklies can provide to a portfolio. Lets discuss some of the key aspects.
WEEKLY
Each week the CBOE releases a new list of weekly options offered but the majority of the list stays the same. They are issued each Thursday and expire the following Friday. The only exception is that there are no new weeklies offered for expiration on the third Friday of each month as that is when monthlies expire.
Time Decay
The key advantage of weekly options is the rapid time decay. If you are option income trader or investor then you can now sell options every week instead of once a month to collect rapid time decay.
Traditionally, time decay on monthly options didn't really pick up until expiration week so the advantage with weeklys is that you boost your returns vs. monthlies. The general rule of thumb is that you can collect about two times the premium selling each week vs. one monthly.
If you a directional trader looking to make a short term trade with a long options then a weekly allows you to purchase an in the money options with little time premium priced in vs. a longer term monthly would carry more time premium. The shorter time to expiration means you don't need to buy as far in the money options with a weekly as you would with a monthly option to get the same move in the option that you own. This is because the delta will be higher on the weekly vs. monthly for the same respective strike price.
Weekly Options Strategies
Generally the most popular strategies with weeklys are income strategies that have traditionally been popular with monthly options like vertical credit spreads, covered calls, and calendar spreads. All of these strategies involve being short an option with the intent of having the short option expire out of the money and collect the premiums.
Option Risk
The biggest risk with a weekly is if you implement a trade that involves selling an out of the money call or put is that in order to collect a reasonable premium you will have to sell closer to the market strike prices. This is due to the fact that with the short time horizon, the underlying stock has less chance of making a large move. Therefore farther out of the money options contract have a higher likelihood of expiring worthless.
Overall, weekly options can provide a huge benefit to option income traders whether they are traders or long term investors but you must first have a good understanding of options strategies and risk/reward before investing in them.
Weekly Options WEEKLY
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