Weekly Options – 4 Tips to Trading Weekly Options


Weekly options started to become trade able during 2010, the Chicago Board of Options Exchange (CBOE) introduced the Weeklys as a new exchange traded product. This product is similar to standard options, with the only different effecting the length of time of the option. Weeklys take advantage of short term movements, without the disadvantage of a potential 4 week time decay. The market has continued to broadened and allows investor the most efficient leverage when looking for short term stocks movements.

Weekly option trading is fairly intuitive. The options are listed every Thursday, and they expire the following Friday. Weekly options are available on all the usual stocks and indexes, such as the S&P 500 Index (SPX), along with the major exchange-traded funds (ETFs), such as the Financial Spider Select XLF.

Weeklys are also available on some of the most widely traded equities such as, includes Apple Inc. (Nasdaq: AAPL), Exxon Mobile Inc. (NYSE:XOM ), and JPMorgan Chase & Co. (NYSE: JPM). The list of stocks and futures that are traded regularly change. Information with regard to availability are listed on the CBOE web site.

Weekly Option Tips

* Trade the Weeklys when you are looking for a short term movement in a financial instrument

Trading the Weeklys have many benefits. The options have a shorter duration than standard options which expire every 3rd Friday of the month. Shorter dated options will cost less than longer dated options, because there is less time value which generally drives up the price of an option. You should trade weekly options when you are looking for short term movements in a market.

* Use weekly options to take advantage of volatility around an economic event or earnings release

weeklys can be specifically valuable around economic data releases or earnings releases. Because you can keep your premium to a minimum, there’s probably no better way to maximize the power o leverage within the generic options arena.

* Trade weekly options when you need to hedge your portfolio

If you have a portfolio of stocks and options you might be able to offset some of your exposure with weekly options. You can purchase insurance or short-term protection for your stocks. The cost will be low than standard options with more than a week to expiry. Additionally, to hedge your exposure to the market you can purchase weekly puts on the major indices to offset potential losses on your portfolio.

* Generate short term income by selling covered calls

You can also sell covered calls on weekly’s. Although the income you receive will be less than a longer term option, your waiting time until expiration will be a lot shorter.

Weekly Options Specifications

The Chicago Board of Options Exchange offers three different types of weekly options, along with weekly settlement data and volume/open interest information. Some of the options they offer have morning settlements while others offer PM settlement.

Weeklys are traded using American-style exercise features, which make then exercisable at any point prior to the expiration date. On expiration, the buyer has the right but not the obligation to receive the underlying instrument.

Liquidity on the Weeklys is robust, with the average weekly volume for the new options increasing above 300,000 contracts by November 2010.

Your Edge

It’s time for you to stop sitting on the sidelines wishing about all the money you can make, and start learning and understanding how to make money trading the Weeklys.

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