Schaeffer's Outside the Box Blog
Stocks quoted in this article:

If there's one certitude in options trading, it's that the class of options you can trade is ever-growing.

There was a time when each options board had four expiration cycles -- generally the next two months out, plus a couple of quarterly cycles. Over time, we added LEAPS, Quarterlies, and random other monthly expirations. Strikes were once $5 apart over $25, and $2.50 apart under $25 ... now they're $1 apart, and even less on low-priced names.

And of course we now don't even have a month to wait for expiration any more, thanks to Weeklys.

Which brings us to our newest innovation -- Weeklys listed each week out as far as a month, new from the CBOE in November:

CBOE and C2 Options Exchange recently amended their rules to allow trading in up to five consecutive Weekly Option expirations for equities, ETFs, ETNs, and indexes. Previously, CBOE was only approved to offer five consecutive expiration weeks for the S&P 500 index (SPX Weekly Options). For details on the rule changes, see CBOE Information Circular IC12-093 and C2 Information Circular IC12-015. See Regulatory Circular RG12-066 for related information on SPX Weeklys.

SPX Weeklys are PM-settled on the last trading day, typically a Friday. As with other PM-settled index options, the exercise-settlement value is calculated using the last (closing) reported sales price in the primary market of each component stock. On the last trading day, trading in expiring SPX Weeklys closes at 3:00 p.m. (Chicago time). All non-expiring SPX Weeklys continue to trade until 3:15 p.m. (Chicago time). For standard PM-settled, S&P 500 options that expire on 3rd Fridays, see ticker SPXPM, traded on the C2 Options Exchange.

Weeklys are listed each week except that no new Weeklys are listed that would expire during the expiration week for regular options (the third Friday of each month), nor would they be listed if they would expire on the same date as a Quarterly option on the same underlying. Other than SPX Weeklys, closing times for Weeklys options match the closing times for regular, non-weeklys on the same underlying.

Our dream of daily and hourly options is within reach!

Okay, seriously, should we care?

It's a little early to make any determinations, but I doubt these new listings impact implied volatility in any important way. Between $1 strikes and countless series already on the board, it's a relatively small incremental boost to the trading board. It's always possible that adding new series will dry up liquidity in other spots, as it disperses interest in any one particular spot. But that's not likely an issue here either, as we'll only have these extra Weeklys in liquid names.

My big fear when Weeklys first came onto the scene was that they would occasionally turbocharge outlier moves as traders trapped with options shorts and little premium cushion would be forced to chase moves. So far, so good, on that front. I imagine we've had some minor accidents, but nothing catastrophic has occurred. Then again, we've had a relatively non-volatile stretch here, so not sure what happens in a 2008 sort of melt.

This isn't a particular issue with Weeklys further out. They're no different from the monthlys that expire mid-month (but with way less open interest).

There's really no reason not to trade these. The liquidity should remain high enough, and they give you the opportunity to tailor your position as you see fit.

Disclaimer: The views represented on this blog are those of the individual authors only, and do not necessarily represent the views of Schaeffer's Investment Research.


permanent link
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT

Partner Center

© 2014 Schaeffer's Investment Research, Inc. 5151 Pfeiffer Road, Suite 250, Cincinnati, Ohio 45242 Phone: (800) 448-2080 FAX: (513) 589-3810 Int'l Callers: (513) 589-3800 Email: service@sir-inc.com

All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.

Market Data provided by QuoteMedia.com | Data delayed 15-20 minutes unless otherwise indicated.