How To Trade Weekly Options With These 9 Strategies

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Weekly options are entirely different than monthly options, and it behooves all options traders to know the key differences between the two types of options to avoid potential errors when placing trades. Prior to the arrival of weekly options, traders and investors only had 12 options expirations per trading year. If options are ITM at expiration, they will have intrinsic value.

If options are OTM at expiration, they will be entirely worthless. This black and white scenario is part of the appeal of options, and it is why there are so many options strategies to choose from. Option managed-options-trading-account are hoping that the options they sell will either decrease in value prior to expiration or expire worthless or both.

Option buyers are hoping that the options they buy will either increase in value prior to expiration or expire with intrinsic value or both. Weekly options provide more flexibility and timeframes to choose from when deploying an options trading strategy. Weekly options function virtually exactly the same as regular monthly options, except that they are created every Thursday up to 39 days in advance.

Monthly options were first introduced only in the form of put options in by the Cboe as a way to hedge long stock portfolios. Soon thereafter, call options were introduced and the world of options trading was born. Since then, options volume has exploded. Although options originated as a form of hedging, a lot of traders now use options solely to speculate via buying or selling premium opportunistically. Basically, there are two different strategies traders use with options: In a nutshell, buying options involves risking a small amount of money to potentially make a lot, and selling options involves risking a large amount of money to hopefully make a little.

Traders like selling options, particularly out of the money options, because there is a higher probability that the option will expire worthless than that the option will expire in the money with some intrinsic value. However, in exchange for this higher probability of expiring worthless, selling options has a much greater potential for loss compared to reward. As time passes and expiration nears, out of the money options contracts will theoretically decrease in value due to time decay.

Without question, the Cboe realized that traders like to sell and buy options based solely on the amount of time remaining until expiration, so weekly options were created and there are now options expirations for most stocks every single Friday. In the case of SPX, there are actually three weekly option expirations.

One on Monday, Wednesday, and Friday. Almost every other index and stock only has Friday weekly options; SPX is an exception because it is so popular and heavily traded. All weekly SPX option versions are PM settled normal option settlement time and are European-style exercise, meaning in the money options can only be exercised after expiration and not before. American-style options that are in the money can theoretically be exercised at any moment like a month before expirationalthough this is extremely rare.

Nevertheless, this possibility of early exercise and, therefore, early assignment, is a real risk for option traders who may not have the capital in their account to sustain an assignment. Weekly SPX traders need not worry about this, which is a nice bonus. This is the full list of all securities in the US with weekly options including stocks, ETFs, and indices. Since quarterly options are not that frequent, they are really not that popular.

A weekly option will never expire on the same date as a quarterly option. There is never any overlap. At the end of the day, weekly options and monthly options are really similar, and the only difference, besides a few settlement times for different products, is the amount of time until expiration. A lot of option sellers refrain from selling options with more than days until expiration, because theta decay seems to have less of an effect with more time until expiration. Conversely, as expiration nears, out of the money options will rapidly lose value due to theta decay because the option will either expire worthless or with intrinsic valueso this is precisely when a lot of option sellers choose to attack.

Other than that, selecting between weekly vs monthly options is entirely dependent on your market outlook and time horizon. Weekly Options vs Monthly Options February 20, Options Bro February 20, Understanding Monthly Options Monthly options were first introduced only in the form of put options in by the Cboe as a way to hedge long stock portfolios.

Why are Options a Big Deal? Weekly Options vs Monthly Options Most online brokers clearly highlight which options are weekly and which options are monthly.

CONS Active trading of weeklys can result in lots of fees and commissions With such a short amount of time until expiration, weeklys can change price rapidly and result in big losses if timing is wrong Weeklys can sometimes be illiquid compared to monthlys on the same product.

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The explosion in popularity of weekly options has allowed more traders to take advantage of volatility in high priced stocks such as Google NASDAQ: These short-term instruments have helped to solve a conundrum that has faced traders as the prices of some stocks have soared — namely how to trade these names without putting up the large amount of capital required to enter a position. Trading stocks such as Google and Apple in even one hundred share lots is an impossibility for many traders.

These are two of the most popular trading stocks in the market, yet a larger account size is required to trade the equity. For this reason, many traders have turned to weekly options to capitalize on the volatility in these and similar names.

These instruments have become ever more liquid and provide expiration opportunities every week. Weekly options are typically listed on Thursdays and expire on the following Friday. While there are a wide variety of different strategies that can be employed using weekly options from hedging to spreading, they also are great instruments for gaining directional exposure.

In general, any type of strategy that can be executed using standard options contracts can also be implemented using the weeklies. In addition to popular stocks, weekly options also can be bought and sold on indices and ETFs. The primary advantage to using weekly options for small speculators is the large amount of leverage provided and the small initial capital outlay.

The amount of capital needed to trade options that expire on a weekly basis is a fraction of what is required to trade the underlying stocks. Given the nature of options, however, the risk and reward is also greater on an absolute basis. In other words, it is not uncommon to lose your entire investment when making a short-term, directional bet using weekly options.

Traders should understand the unique risk and reward properties of weekly options before wading into this exciting market. As with all trading strategies , the key to being profitable using weekly options is in position sizing and risk management. Given the volatility of these products, it is important that traders use an appropriate position size on each trade relative to the size of their account. For example, it would be imprudent to bet 50 percent of an account on one trade.

Improper position sizing and risk management is the number one reason why most traders fail. The potential risks of these mistakes are amplified in the weekly options market. It is also essential to develop some sort of niche which provides an edge over other traders in the market. For example, instead of purchasing options, a trader could sell weekly options in order to capitalize on the rapidly decaying time premium inherent in this product.

In sum, traders who are frustrated by the large capital requirements to trade leading stocks such as Apple and Google may find that their strategy can be replicated using weekly options with a considerably lower capital outlay. Furthermore, the key to making money in weekly options is a robust system to manage position size and risk, in combination with a quantifiable and repeatable edge. This article is provided for educational purposes only and is not considered to be a recommendation or endorsement of any trading strategy.

The author is not affiliated with Lightspeed Trading and the content and perspective is solely attributed to the author. Navigating Taxes as an Active Trader. Large Cap Momentum Trading. Open an Account Try a Demo.