I am pumped to show how weekly options work so you can enhance your overall trading.
Weekly options can be just one more valuable tool in your toolbox.
Today we are going to walk through their basics, and once you get this, you can perform the same trades over and over.
By now, I assume you already understand enough about options to go ahead and execute trades, so let’s go ahead and get started.
Weekly options are nothing more than options that are listed to provide short-term trading opportunities. And just like regular options, they can be used to hedge your positions.
Weekly options have been around since 2011 and now encompass over 800 equities, indices and ETFs.
While the total number of weeklies is smaller than the total number of monthlies, there are more than enough to choose from.
The biggest difference between a monthly and a weekly is that weeklies are available each Thursday morning and expire on the Friday of the next week.
Weeklies are marked differently than the monthlies and something you should make sure you pay close attention.
There are many advantages to weekly options such as for a short-term swing trade, they require less capital. For option sellers, it allows you to sell every week as opposed to once per month. Weekly options also allow spread traders the opportunity to reduce their costs.
Here is a one strategy you can use for weeklies over and over.
If you are a regular reader this might be redundant so bear with me for a second.
Call or Put Calendar Spreads
The idea behind this trade is to sell a near-term option while simultaneously buying a further dated option at the same strike. (Also the same contract type – Calls with calls, puts with puts)
Many traders consider this similar enough to a double calendar, however, the difference here is that we are only playing for one side of the spread. We are betting on the direction we think the stock is headed.
If you have a strong opinion on the direction, you can look to play with the calendar.
I can look to sell the current weekly and buy the further-dated option.
The trade will profit if there is a move in that direction and the spread widens.
In a perfect world, I would like the short option to lose more of its value than the long portion of the trade.
The biggest issue with this trade, if I am wrong about the direction and the price moves aggressively against me, I would be in a loser. The trade can always recover since I am still long the further out option.
This is not what I am looking for, so I would more likely close the trade for a loss rather than hoping for a comeback.
If I had a strong bias on which way the stock is going to trade, I could buy a longer dated option and use the weekly option to sell the same strike against it. In this scenario, I can both long and short the stock, and continue to seel the weekly and use the profits collected to reduce my overall cost basis.
In most cases, this creates a ‘no-cost’ trade. The issue would be if we sold the weekly option and the price was to expire above the strike sold, then we need to close out the long AND the short spread.
We would then simply look to reopen the trade the next day.
This a staple of many traders toolbelt since the introduction of weekly options.
— The Option Specialist