Some people are surprised weekly options exist until they learn about weekly options trading through their broker or an advertisement. They were authorized by The Chicago Board Options Exchange (CBOE) in response to a demand by option traders.
They are commonly referred to as Weeklys and the CBOE offers an updated liston their website as to the different classes of security offering Weeklys. They also offer in depth information on Weeklys as well as your “regular” monthly options.
Weekly options, as you might guess, have a shelf life of only one week. They are listed on Thursdays and expire the following Friday. That makes the weekly trader stay awake and watch his position. With only a one week shelf life, the option can get away from you very fast given the time value shrinks geometrically rather than proportionately.
Weeklys are touted as a cost-effective way to trade around events in a specific time frame. This can be argued any number of ways. The way you elect of course depends on your desire to enter this particular trading realm.
Weeklys offer 52 expiration dates a year versus only 12 for traditional options. This gives option investors more time to play the options market. However, because the field can change weekly, they may have to learn and adjust to new securities they have not dealt with prior to them being introduced as allowable trading securities.
Weeklys present a whole different set of, and in some cases new, nuances that must be learned. Given the speed of this market that could be formidable. The biggest nuance given this new speed parameter is the investor’s ability to call the market correctly. In other words, if you think it is going lower, you have only a week to be right.
Said another way, traders better grasp the fact that out-of-the-money options fade into the nether world at warp speed. Not paying attention to this fact can cost a trader his entire trade equity.
Working for the trader is the fact that Weeklys can cost far less than monthly options. This is because the time to expiration is so short. However, this may not be as big an advantage as it appears. Again, that depends on the underlying security.
Time value can work both ways even in such a short period as Weeklys. Since traders only have a few days for a stock or index to move in the money, they need to pounce and retrieve profit or capital immediately.
Weekly options trading still has options trading strategies the same as monthly options. The only difference is they are modified to fit the time frame of the market.