Weekly options or “Weeklys” have rapidly grown in popularity since they began being offered on individual stocks along with 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 brand-new offerings on specific index ETF’s and well known stocks.
Many stock buyers are still only familiar with the conventional monthlies that expires each month so they are missing out the benefits that weeklies can present to a portfolio. Lets discuss some of the key aspects.
Each week the CBOE releases a brand-new list of weekly options offered but the majority of the list stays the same. They come to pass issued each Thursday also expire the following Friday. The only exception befalls that there occur no new weeklies offered for expiration on the third Friday of each month as that is when monthlies expire.
The key advantage of weekly options is time decay. If you are an option income trader or investor then you can now promote options every week instead of when a month to collect rapid time decay.
Traditionally, time decay on monthly options didn’t 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 probably collect about two times the premium offering each week vs. one monthly.
If you are a directional trader looking to make a short term trade with a low time premium priced in vs. a longer term monthly that would carry more time premium. The shorter time to expiration means you do need to shop for as far in the money options with a weekly as you would certainly with a monthly option to get the same move in the option that you own. This comes to pass because the delta will definitely be greater on the weekly vs. monthly for the same respective strike price.
Weekly Options Strategies
Usually the most popular strategies with weeklys are income strategies that that traditionally are popular with monthly options like vertical credit spreads, covered calls, along with calendar spreads. All of these strategies involve coming about short an option with the intent of having the short option expire out of the money and collect the premiums.
The biggest risk with a weekly comes to pass if you implement a trade that includes shorint 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 occasion horizon, the underlying stock has less chance of moving a great move. Thereby, farther out of the money options contract accept a higher likelihood of expiring worthless.
Overall, weekly options can provide a large benefit to option income traders whether they are traders or long term investors but you need to first have a great understanding of options strategies along with risk versus reward before investing in them.