So what strategies can you implement with weekly options? Well, just about any strategy you do with the longer dated options, except now you can do it four times each month. For us premium sellers who like to take advantage of the rapidly accelerating time-decay curve in an option’s final week of its life, the weeklys are a bonanza. Now you can get paid 52 times per year instead of 12. Whether you enjoy selling naked puts and calls, covered calls, spreads, condors or any other type, they all work with weeklys like they do with the monthlies – just on a shorter time line. I prefer the covered call because you own the stock and just collect weekly premium. I also like to trade credit spreads and occassionaly a butterfly.
Before anyone gets too excited about new products, one of the first questions is invariably about liquidity and market depth. Rest assured, there is already substantial liquidity and market depth in the weekly options being offered.
Weekly Option Series will be listed each Thursday or Friday (depending on the listing exchange’s rules) and expire the following Friday except for those instances when the following Friday is a standard Expiration Friday (the 3rd Friday of the month). If the following Friday is an OCC holiday, the weekly option series will expire on the Thursday preceding the holiday. No new Weeklys are listed that would expire during the expiration week for standard options (the third Friday of each month). In other words, the exchanges do not list new Weeklys on the 2nd Thursday of a month and do not trade Weeklys during the following, standard expiration week until new series are listed on Thursday of that week.
Open positions in equity and index Weeklys will expire on Fridays (OCC processing will occur on Fridays, not Saturdays).
Expiration processing at the OCC for expiring Index Weeklys will be comparable to Index Flex expiration processing. European style Index Weeklys will allow exercises only on the business day they expire (usually a Friday). Index Weeklys will be automatically exercised using the “standard index” automatic exercise threshold class. That is, like other index options, exercise-by-exception (“ex-by-ex”) responses will not be allowed.
Expiration processing at the OCC for expiring Equity Weeklys will be comparable to equity Flex expiration processing. Equity Weeklys will be subject to exercise-by-exception processing using “standard equity” automatic exercise threshold class. Exercise-by-exception responses will be allowed. (Note: equity option Weeklys will be American-style exercise and can be exercised on any Exchange business day.)
Please note that the OCC member window is closed at 7:00 p.m. Central time, so members reporting trades after that time will not be able to respond to OCC’s exercise-by-exception process for equity Weeklys. Contact your broker to find out their deadline for requesting exception processing. (This does not pose an issue for Index Weeklys since all in-the-money index Weeklys are exercised automatically.)
Bottom Line: The weeklys are another tool in your investor toolbox. Like most of the other tools in that box, they are powerful enough to create quick profits or quick losses, depending on how you use them. The good news is that if you trade monthly options at all then you already have some experience with the weeklys, because the final week of a monthly is nearly identical to how a weekly behaves – indeed, during the monthly expiration week they are the same security. Anyone who has developed an expiration day (or expiration week) strategy is almost certainly using their strategy with the weeklys now. These same investors are no doubt eager for additional symbols to be added to the weekly line up.
Here is a current list of weekly option stocks, ETFs and indices (click image to enlarge):
