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On Any Given Friday: An Introduction to Weekly Options

October 19, 2017
Weekly Options Calendar
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It used to be that option expiration occurred once a month, generally on the third Friday of the month. That all changed in 2005 when exchanges began listing options expiring each Friday. Nowadays, investors can buy and sell puts and calls on the monthly ("serial" or “third Friday”) contracts, plus six weekly expirations ("weeklys").

Weeklys are short-term products designed to help give option traders more targeted exposure to market events, such as earnings reports and economic data releases. Read on to see if weeklys might be right for you.

What’s All The Hoopla?

The question around weekly options is often “what’s the difference between weekly and serial options?” The answer? Nothing, really, aside from more frequent expiration dates. Weekly options are just like the third Friday options—they have a multiplier of 100, and at any time on or before expiration, you can exercise a long option (or be assigned a short option) into 100 shares of the underlying stock at the strike price.

The only real difference is that, with weekly options, every Friday is expiration day. Unless, of course, that Friday is an exchange holiday, in which case the options expire on that Thursday.

Weeklys in thinkorswim


Sample option chain with weekly and serial or "third Friday" expiration dates. Image source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only.

Some Characteristics of Shorter-Term Options

While there are no real differences in the contract specifics of weeklys, their shorter life span does mean a few things.

  • Potentially smaller premiums. For a call or put option of any strike price, the shorter the time to expiration, the smaller the premium. So buying a weekly option expiring in the first or second Friday of the month will mean less premium outlay compared to buying an option expiring on the third Friday. But for those interested in selling options, the amount of premium collected will be lower.
  • Faster rate of time decay. Though the premium may be smaller, the daily time decay, theta, is higher the closer you get to expiration. For more on theta, refer to this primer.
  • Prices can change more rapidly than longer-term options. Sure, all option prices can fluctuate due to changes in the price of the underlying stock and changes in implied volatility, but the delta of short term at-the-money options tend to have a higher responsiveness to changes in the price of the underlying. In other words, these options have a higher gamma.

Using Weeklys to Target Exposure

So, with lower option prices and the possibility that those prices could change quickly, where might weeklys be put to use? Suppose you think a stock might have an oversized move on an earnings report or other news announcement. Or maybe you’re expecting the broad market to experience a larger than normal move from an economic report. If so, you might consider buying an option or option spread such a straddle or a strangle using weekly options.

On the other hand, perhaps you think the market has priced in too big a move off an earnings or economic release. In this case you might consider selling options or option spreads. For example, some options traders will choose to sell an iron condor, a risk-defined strategy consisting of a short vertical call spread and a short vertical put spread, around earnings reports.

In both instances, using the weekly options allows you to target your exposure to specific market events.

It’s worth noting, however, that this targeted exposure has a potential downside: transaction costs. If you’re considering whether to trade short term options more often, versus fewer, longer term options, remember that the more you trade, the more you’ll spend in transaction costs. But perhaps that’s the price of flexibility and targeted exposure.

Weekly options aren’t that different from their longer-term counterparts. Yes, premiums can be lower, and yes, they can have higher gamma and theta values. But, in the end, they’re just options.

Because they are short-lived instruments, Weekly 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.

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