Why Traders Are Choosing Weekly Options

Breaking down the value of weekly options with trading guru, Bernie Schaeffer

Apr 14, 2022 at 11:16 AM
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    Traders in the stock market are always constantly running to make the most out of their investments. Whether they choose to do so by investing in stocks or options, adopting the correct strategies are essential for any trader to maximize their returns. The primary difference between the two is, stocks enable you to possess a share in the company's ownership, while options are contracts that allow you to rightfully sell or purchase the stock at a set price and date.

    There is a recent trend with traders choosing to invest in options (specifically weeklies) over stocks. Any time we dig into intraday option activity of an individual equity, a weekly contract is among the most popular. Though it can be highly volatile, weekly options can prove to be more profitable over traditional stock investing if done correctly.

    Traders get to choose between monthly and weekly options as per their suiting and bankroll. The growing popularity of weekly options has all our heads turning. Investors are more convinced than ever to invest in weeklies; if you are curious to know why subscribe to Schaeffer's Options Newsletter for more information.

    Let's go over some of the reasons traders choose weekly options over any other derivative within the stock market.

    What are Weekly Options?

    Weekly options are no different from ordinary stock-market options but are short-termed and possess a week's worth of time before they expire. Weekly options expire every Friday, with newer options issued every Thursday, eight days later.

     The standard contracts listed over the products are close to the product specifications in weekly options. Weeklies are mainly listed on numerous Exchange Trade Funds (ETFs)

    The stock market happens to be the epitome of unpredictability; short-termed weeklies allow them to respond to fluctuations in the market effectively.

      Weekly options are designed to promote efficiency in the fast-paced stock market while allowing traders to apply beneficial short-term trading tactics to maximize their returns.

    Why are Traders Choosing Weekly Options?

    Monthly options are similar to weekly options but vary in terms of specifications. The difference in the specifications encourages traders and investors to opt for weekly options rather than monthly options.

    The main advantage of weeklies lies in the expiration time. With monthly options, investors are limited to 12 expirations per year, with an expiration date on the third Friday of every month. On the other hand, weekly options allow traders to enjoy up to 52 expirations per year instead.

    Options can either expire OTM or ITM. Every option seller would hope for the options to expire out of the money (OTM), which is entirely worthless. In contrast, option buyers would want the options to expire in the money (ITM), which would have an intrinsic value at the expiration date.

    Investors can be quite selective when it comes to expiration dates. While it may come to their advantage, it can also prove to be disadvantageous to an extent. Expiry dates create delicate scenarios for traders and require using options strategies such as weeklies to counter the stock market's ever-changing environment.

    Weekly options happen to be compatible with all kinds of calls and puts, which you would come across in monthly options. Therefore, traders can benefit from weeklies knowing they are barely making any compromises if they were to invest monthly.  Weeklies have the upper hand not only because they are short-termed and carry an aggressive way of trade but because they are fast-paced too. This makes it ideal for cautious traders susceptible to the unforeseeable nature of the stock market.

    Traders investing in weeklies have the opportunity to make additional gains through a prediction on the movement within the stock market. Traders can strategically plan while making the most out of news-driven market moves.

    Additionally, world-renowned indices such as S&P 500 offer three weekly expiration dates (Monday, Wednesday, and Friday) instead of one. The flexibility indices such as these encourage heavy trading with weeklies amongst traders and is another reason why traders are choosing weekly options.

    Future Prospects of Weekly Options

    Traders who aspire to quick moves within the next couple of days are getting lured in easily with weeklies. They will be exposed to greater chances of high returns relative to monthly option investments. Subscribe to Schaeffer's options newsletter and stay up to date with all there is to know about weekly options and how you can make the most out of them as a trader.



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