The DeCarley Perspective...
Weekly options, provide options to long and short traders
Read our latest article on TraderPlanet discussing weekly options
What are weekly options?
Weekly options are simply options that expire at the end of each week, rather than once a month, or less, as traditional options typically do. The CME Group has listed weekly options on their most popular complexes such as Treasuries, Grains, and stock indices. In each of these products, the weekly options expire on the Friday of each trading week that is not already an expiration day of the standard (monthly) version of the option.
For example, the June monthly options in the Treasury bonds and notes expire on May 22nd. Thus, the May weekly options will expire on each of the Fridays in May that are not May 22nd (ie. May 1st, May 8th, May 15th, and May 29th).
Advantage of weekly options
Price
Weekly options tend to be cheaper than options that expire monthly because under most circumstances the expiration date tied to the weekly options is sooner than that of the corresponding monthly options. Accordingly, they are often trading at lower premiums to enable traders to establish cheaper, and therefore lower risk, speculations. With that in mind, we’ll later point out that lower risk isn’t always the same as less risk.
Flexibility
Due to frequent expirations, and relatively lower premiums, weekly options offer substantial flexibility to traders. This is primarily true because of the ability to hone in on a certain economic event or release. Thus, option speculations can be targeted to certain time frames. Prior to weekly options, the luxury of efficiently speculating on short-term events was only available to futures traders. In many ways, weekly options are superior to trading volatile events with futures. Unlike futures traders who must choose between suffering large and uncertain losses, or risking getting a stop order elected at an inopportune time (moments before the market goes in the desired direction); weekly option traders can limit their risk to a known amount. Additionally, they will never be forced out of a trade on a knee-jerk reaction because even an option that is losing money, has the ability to come back to life and perform for the trader at any time before expiration. Simply put, it provides short term traders with lasting power despite volatility.
