What are Weekly Options?
Weekly options are options that expire at the end of the week, per week. These days weekly options can have 1 week, 2 weeks, 3 weeks, 4 weeks, 5 weeks, 6 weeks… till expiration giving you much more flexibility in matching your price action trades to best scenario expiration in order to optimize the best percent return.
The first weekly options were traded on the Chicago Board of Exchange (CBOE) in 2005. Weekly options have an expiration as designated by the options chain expiration date. Now weekly options cover more than just one week options. There are 2 week, 3 week, 4 week, 5 week… options as well which give us traders better flexibility in timing our trades to an options expiration.
The assets traded on weekly options include most of the top stocks as well as the major indices and exchange traded funds (ETF). A visit to the CBOE website will reveal a comprehensive list of more than 120 assets that can be traded as weekly options.
Trading weekly options will require some adjustments on the part of the trader. The expiry is known ahead of time in your options chain. As such, the trader has to adopt their time frame of trades on their charts of choice in conducting trade analysis.
We can see from this definition that weekly options are not so much defined in terms of a trading strategy, but rather in terms of duration of expiry. Most of the options trading strategies such as the butterfly option can be traded as a weekly option.
Advantages of Weekly Options
If you know what you are doing, you can make money faster with weekly options than you can with the conventional options. You have cheaper options with higher deltas. If you can time quick swing moves, micro swing moves or quick pop moves you could make a very large ROI on your investment if your trade follows through with some velocity.
Disadvantages of Weekly Options
One major disadvantage of weekly options is that they are more susceptible to the whipsaws of volatile short term price movements such as those that occur from news releases and events like the weekend gap. Shorter-term trades have a greater degree of uncertainty than longer term ones. It is difficult to repair trades that have gone against the trader, and there is usually no time for a losing trade to reverse in the trader’s favor.
Also your premium decay rate is larger meaning your options decay more quickly since there is little time until expiration. That’s why it’s important to trade strategies the target quick, explosive price movement.
Weekly options can be used to generate good profits, but they can also wreck a trader’s account if the trader is unfamiliar with the usage of this option type. As such, only protectionist strategies should be used by beginners to trade the weekly options.