Option trading is one investment vehicle accessed mostly by the so-called sophisticated investors. With the experience that honed their skills, they can deal well enough with the risky trade of options. And this appetite for risk has been satiated even further with the arrival of weekly option trading.
While most options are traded for speculation, weekly option trading is being used to maximize return on every dollar of investment and to generate income as steady as the traders’ stamina to keep on trading. And this level of sophistication can be achieved by regular investors too by learning the ‘how’ and ‘why’ of weekly option trading.
How to trade ‘Weeklys’?
Listing and Expiration
For any financial security to be traded, it has to be listed. The Options Clearing Corporation (OCC) takes care of the listing and delisting of options. Weekly options are listed through the OCC every Thursday and expire the next Friday.
The weekly listing, however, is put off to another week during the expiration of standard options every third Friday of the month. The expiration is also moved a day earlier (Thursday), if the expiration during Friday falls on a holiday. Another exception is the extended expiration of some weekly options. These are approved by OCC and can extend up to five weekly expirations.
Both equity and ETF weekly options should be exercised within the period before the option contract expires (the American-style). These options are usually settled in cash, unless the contract dictates otherwise.
Weekly options have a distinct ticker symbol that distinguishes them from the regular options. While it has all the same information that a standard option contract has, weekly options carry something more unique to easily recognize them and reduce confusion when trading.
Most investors follow an option trading style derived from the common methods like butterfly, spreads, and double diagonals. Each can be advantageous only up to a certain point or event. But since weekly options can be traded more frequently, these styles can be tried and tested consistently to improve on your skills or recover from a bad trade.
Why ‘Weeklys’ work?
Weekly options offer a ready market to its investors. The securities traded are liquid and offer an acceptable risk-return deals. This includes S&P 500 ETF, DIA, SPY and QQQ.
Weekly options have a steady and growing market. Although relatively new, the ten years worth of weekly option trading has earned it enough recognition to bring a substantial increase in volume traded.
The short time period is an advantage to those investors who like to profit with limited risks and volatility. Since one week does not cover too many events that may cause wide fluctuations in security prices, this minimal exposure makes weekly options attractive and a high-quality investment.
If standard options offer flexibility, this is truer with a weekly option. Most especially for those weekly options that have extended expiration. It offers many ways to strategize and manage your portfolio.
Generally, option trading offers an option to use lower capital than one would in a stock investment. This advantage is still possible in weekly option trading. A $10,000 capital investment gives a potential earning of up to $2,000 in a month.
Weekly option trading can be used for so many reasons and in so many ways. As sophisticated as it may seem at face value, it only takes some training and consistency to get the most out of your investment in a limited time.