Breaking down how to use weekly options effectively
The stock market provides individuals with an incredible variety and volume of investment opportunities and continues to gain attention from amateur and retail investors worldwide. Specifically, trading options has become a particularly popular derivative amongst investors. Equity options enable investors to have the right to purchase or sell a stock at a set price and with a set expiration date. Investors can choose to trade between monthly or weekly stock options, both of which vary in terms of specifications.
To understand more about how weekly options work, this article will walk you through all there is to know about weekly options. Additionally, subscribing to Schaeffer's Weekly Options Real-Time Alerts will provide you with deeper insights and real-time trading recommendations focused on weekly options. Weekly options have the potential to be volatile and risky, but also have the potential to produce incredible trading returns at the same time. Understanding weekly options and how traders can make the most out of them is essential to know when trading weekly options.
What Exactly Are Weekly Options?
Weekly options are similar to standard monthly options, but are typically cheaper and can be traded on a much shorter time frame. Weekly options product specifications are similar to the standard monthly contracts listed for each stock. Weekly options are listed on various Exchange Trade Funds (ETFs), index products, and major indices.
The concept of weekly options was introduced and designed by the Chicago Board Options Exchange (CBOE) in 2005. Weekly options were proposed an innovative way for traders to apply short-term trading tactics and strategies in a more cost-effective way. Weekly options were created to promote efficiency in an unpredictable stock market while making the most out of news-driven and short-term market moves.
How Expiration Dates Work With Weekly Options?
Weekly options are released with a weeks' worth of time before expiry. Weekly options are typically listed with a minimum of one week before expiration. New weekly options come in every Thursday, expiring the next Friday, eight days later. The expiry dates can vary and are adjusted as per holidays. Lately, weekly options have begun being released many weeks before expiration and providing traders even more time and opportunity to take advantage of weekly options.
Weekly options are quite distinct from monthly options in terms of expiration as they do not ever expire on the same date as a standard monthly options contract. Traditionally, standard monthly options expire on the third Friday of every month. Investors who were limited to 12 expirations per year are now being given the opportunity of weekly options, where they can enjoy up to 4 expirations per month.
Option expirations happen to be a lot more valuable in the eyes of options traders than most could ever anticipate. This is because options expire in two ways (unlike stocks), namely, in-the-money (ITM) or out-of-the-money (OTM) at expiration. Both forms of expiry are two ends of a spectrum. An option with an ITM expiration would mean the options possess an inbred value, whereas an OTM expiration of an option would be completely worthless. This delicate scenario has prompted the development of several options strategies, including weekly options, for traders to choose from.
The stakes are high for both the weekly option seller and the weekly options buyer. Weekly option sellers would hope for the options to expire OTM, and weekly option buyers would want the options purchased to appreciate or expire ITM.
Why are Weekly Options So Popular?
Weekly options continue to soar in popularity and make up to 20% of the stock market's daily options volume. Weekly options are a great method of trading that allows retail traders to inexpensively get into a trade on a popular underlying stock that would be rather expensive if utilizing just standard monthly options. Traders are now rushing towards weekly options, primarily due to their short-term nature. Weekly options pose as ideal products for traders who seek efficiency and quick movement in the underlying ETF or stock. Weekly options are an aggressive way of trading that carries strong potential for a quick-profit trade.
The S&P 500 (SPX) offers multiple weekly options to trade. Unlike other stocks and indexes, SPX makes an exception, offering three weekly option expiration days each week. Expirations take place on Monday, Wednesday, and Friday only because SPX is so popular and is therefore traded extremely heavily.
In terms of advantages, all sorts of puts and calls are compatible with weekly options jut like monthly options. In fact, weekly options allow you to gain on trades through a predicted and sudden price movement, something unachievable with standard monthly options.
While weekly options and monthly options remain similar to one another, the real difference lies in the time until expiration. To learn more and stay updated on weekly options, subscribe to
Schaeffer's Weekly Options Countdown