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Want a Weekly Option? Learn Why Weeklys Trading Is Booming

April 2, 2015
weekly expiration

In the early 2000s, my trading buddy and I jumped into index futures. We were some of the first retail traders to plant our flag in the Russell 2000 e-mini futures market, and we actively traded the S&P 500 (SPX) and NASDAQ 100 e-minis. We traded these contracts because of leverage, insignificant theta (time value), and deep liquidity.

But 12 times a year, these markets just weren’t enough. We’d trade monthly options. When exactly? Expiration week, of course! We’d  jump over to monthly options on expiration week because theta had eroded during the previous three weeks, so the monthly options were cheap. And the moves in at-the-money options could sometimes be explosive, meaning they were ripe with potential opportunity.

Nowadays, every week is like expiration week thanks to WeeklysSM options, offered by the Chicago Board Options Exchange (CBOE). They’re structured much like monthly options, but they exist only for about a week. New Weeklys  are typically introduced every Thursday and expire eight days later on Friday.

Trading in Weeklys is booming. According to the CBOE, about 30% of all options volume in the SPX—the S&P 500 cash index—is done with Weeklys. I’ve heard estimates from options traders that about 35% of options volume is of the weekly variety. So, why all the popularity?

Eyes Toward Earnings

In addition to the reasons my buddy and I traded what were essentially weekly options back in the day, some traders are drawn to the official Weeklys options markets because they’re looking for potential trading opportunities around corporate earnings releases. With risk defined by the premium paid, large moves in an underlying stock after earnings can result in potentially significant profits in long Weeklys options trades. At least, that’s what these option traders are going for; of course, there are no guarantees, as significant losses could also result.

Other traders take the other side of the earnings-linked options play by selling straddles and strangles around earnings as a means of trying to capitalize on the volatility crush following an earnings release and company conference calls that sometimes deliver forward-looking guidance for upcoming quarters. Some traders sell covered calls using Weeklys. In other words, this veritable strategy buffet has drawn long lines for traders looking for flexibility.

In fact, Investools wants to teach you more about the risks and strategies that come with using Weeklys.

A Long List

Weekly options are available on indices like the SPX, exchange-traded funds (ETFs), and individual stocks. The CBOE maintains a list of available Weeklys.

Along with the potential benefits of Weeklys options, it's equally important to understand the potential risks before the taking the plunge. Because of their short shelf life, Weeklys options positions require close monitoring, as they can be subject to significant volatility. Profits can disappear quickly and can even turn into losses with a very small movement of the underlying asset.


Here Come the Earnings

Join in on Wednesday, July 8 when Shawn Cruz from TD Ameritrade will host a webcast on WeeklysSM Options Strategies for Earnings Season. And it’s timely—earnings season starts that week.

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