INTRODUCING WEEKLYS OPTIONS
The Chicago Board Options Exchange launched Weeklys Options in 2005, an option containing the same contract specifications as a monthly expiring contract. The contract expires for one week, which is normally listed on Thursdays and expires on Fridays. As of July this year, the average daily volume of weeklys has reached 362,080.
Such options are available on 40 several underlying securities. Indexes and ETFs that hold weeklys include CBOE Dow Jones Industrial Average Index, iShares MSCI Emerging Markets Index, iShares Russell 2000 Index Fund, Nasdaq 100 Index, and SPDR Gold Trust ETF. Many well-known stocks also include weeklys.
Investors can implement as many strategies as they can with weekly options. As a matter of fact, for premium sellers taking advantage of swift time-decay curve, they can earn 52 times a year. Regardless if he or she desires to sell naked puts and calls, spreads, covered calls, or condors, all of these will work with weekly options similar to monthly expiring contracts.
Weekly options enable you to make a very short-term bet on a specific news item or stipulated price movement. Let’s illustrate that. Say you are trading a monthly option. Presuming it is the first week of the month and you are awaiting AB stock to move because their earnings report is due this week. It may be possible to purchase the AB monthlies to cash in on your postulation. But you would be risking three weeks of premium in case the AB moves against you. With weeklys, you only need to risk one week’s worth of premium. It is either you gain or lose money.
Open interest and the volume of the weekly options are huge enough to produce sound bid-ask spreads, but not as high as the monthly contracts. The pinning action which occurs in monthlys does not seem to appear much in weeklys.
Conversely, because of its short duration and rapid time-decay, an investor won’t have sufficient time to repair a trade which has moved against you by modifying the strikes or waiting for some sort of mean revision in the underlying security. Also, even though the open interest and volume are not that high, that is not necessarily true for each strike in the weeklys. Hence, expect some strikes to have very wide spreads.
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