What Are Weekly Options?
Weekly options behave like monthly options. They're released many weeks before expiration. Investors who historically enjoyed 12 monthly expirations on the third Friday of each month can enjoy 52 expirations per year as of 2022.
- Weekly options are similar to monthly options, except they expire every Friday instead of the third Friday of each month.
- Weeklys are introduced on Thursdays and expire eight days later on Friday.
- They have become extremely popular for trading, allowing traders to capitalize on short-term news.
- There are various weekly options on major indices and ETFs.
How Weekly Options Work
In 1973, the Chicago Board Options Exchange (CBOE) introduced the standard call options that we know today. In 1977, the put option was introduced. They have proven to be extremely popular as trading volume has grown handily over the decades. In 2005, 32 years after introducing the call option, the Chicago Board Options Exchange (CBOE) began a pilot program with weekly options.
Virtually any strategy you can implement with the longer-dated options you can also do with weeklys. For 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 as they do with the monthlies, just on a shorter timeline.
Advantages and Disadvantages of Weekly Options
In addition, during three out of four weeks, the weeklys offer something you can't accomplish with the monthlies—the ability to make a very short-term bet on a particular news item or anticipated sudden price movement.
Let's imagine it's the first week of the month and you expect XYZ stock to move because their earnings report is due out this week. While it would be possible to buy or sell the XYZ monthlies to capitalize on your theory, you would be risking three weeks of premium in the event you're wrong and XYZ moves against you. With the weeklys, you only have to risk one week's worth of premium. This will potentially save you money if you are wrong or give you a nice return if you are correct.
Although the open interest and the volume of the weeklys are large enough to produce reasonable bid-ask spreads, they are usually not as high as the monthly expirations. The well-known pinning action that takes place in monthlies, where a stock tends to gravitate toward a strike price on expiration day, does not seem to happen as much or as strongly with the weeklys.
There are a couple of negatives regarding weekly. First, because of their short duration and rapid time decay, you rarely have time to repair a trade that has moved against you by adjusting the strikes or just waiting for some kind of mean revision in the underlying security.
Second, although the open interest and volume are good, that is not necessarily true for every strike in the weekly series. Some strikes will have very wide spreads, and that is not good for short-term strategies.
Examples of Weekly Options
Indexes with weeklys available include:
- Cboe Global Markets, Inc. (CBOE)
- S&P 500 Index (SPX)
Popular exchange-traded funds (ETFs) for which weeklys are available include:
- SPDR Gold Trust ETF (GLD)
- iShares MSCI Emerging Markets Index ETF(EEM)
- iShares Russell 2000 Index Fund (IWM)
- Invesco QQQ (QQQ)
- SPDR S&P 500 ETF (SPY)
- Financial Select Sector SPDR ETF (XLF)