How And When To Trade Weekly Options - YouTube

Hey everyone, this is Kirk, here again at Option Alpha.

And tonight's video for the readers' choice week here is how and when to trade weekly

options.

So, what I'm going to do in this video is kind of go over some of the major weekly options

that are available for traders these days.

I'm sure that weekly options are going to start growing a lot.

They're becoming very, very popular.

Six or seven months ago, if someone asked you what weekly options were, you probably

wouldn't have known anything about them.

But now, I think that a lot of people are interested in them, and I'm glad that someone

brought them up to talk about.

So, just as a frame of reference here: Weekly options operate very, very similar to the

regular monthly and quarterly options, except they're based on (you guessed it) the weekly

time cycle.

So, most of the weekly options that are in the market are issued or rolled out early

Thursday morning, and then they expire the following Friday.

So, again, a very, very quick turnaround, you don't have much time in those options

to make or lose money, so I think which is really popular for today's market and a lot

of the day trading, swing trading type of websites.

So, let's go over a couple things on my thinkorswim platform here with regard to the weekly options.

Okay, so here's my thinkorswim platform.

And again, I can only show this for those of you who understand this.

But follow along with me.

Weekly options are available on most of the major indexes.

The SPX is one of them, and you can see that they're clearly marked here, the weeklies

or the weekly options.

And again, you can see these regular January 1's here, February, March, and then the March

quarterlies.

They're also on some of the more major stocks like Google.

Google does have weekly options, and also, a couple of the ETF's.

I know that USO also has weekly options.

And again, you can see how clearly marked they are on all of these.

But let's go back to the S&P here and use it as our guideline.

And you can see there's just about four days left in these.

So, it is Monday, the 10th of January.

So, these options were issued last Thursday and they expired this Friday.

So, there's a lot of premium left in these options.

I think a couple of ways that I guess you can use weekly options as part of your trading

strategy are two different ways.

One: The first way that I like to use weekly options is not to use them so much as a profitable

type of trade, or I guess, a trade that you are looking to make money on a directional

play in the market, but more as a hedge against some major news that might be coming on the

market.

Remember, last week, there was a big unemployment number coming out at the end of the week.

So, this would be a great time to use weekly options to hedge that unemployment number.

If you think the unemployment number is going to come in a lot higher, and you want to hedge

some downside risk, well, you just come in here to these January options and buy something

far out of the money for say, $10 here.

But it would give you a really good protection, and you would just need it for that week whenever

that particular announcement was coming out.

If you were using Google for example, you could probably hedge some of Google's earnings

announcement and make some money possibly on Google's earnings announcement by hedging

it, either with some calls or with some puts.

So, again, it works in all kinds of different areas, but it's a really good hedging tool

for traders, so that you don't have risk over a certain week.

And what the weekly options allow you to do is not be forced into a contract that's 30

days or 60 days long, where you have to pay for all of that time premium and all that

delta.

So, that's one way you can use weekly options to your advantage.

The other way that you can use weekly options is for profiting on time premium or time decay.

If you notice, (and I'll just change my layout here) you can see that the weekly options

have very, very high theta amounts or theta again, representing the time decay of these

options.

Now, the reason they have high theta amounts is because they do have a limited lifespan.

So, every day that they don't hit that strike price, (whatever that strike price is) they

are losing precious time, and they only have seven days worth of time decay left in them.

In this particular case, these only have four days.

So, this theta is just going to keep ramping up here.

So, what you could do is you could sell some of these out of the money calls and puts,

particularly on the indexes, and make some really good money on these as we get closer

towards the end of the week.

Now, obviously, the risk that you're going to run into here and the thing that you have

to balance is if you want to take on that risk because you're going to have to sell

options a little bit closer to the market.

In this particular case, you'd make some good money, about $40 per contract on these 1200

puts.

But again, you are in a very, very tight window, anything can happen in the next four days,

and we could possibly see the market selloff 60 to 70 points and start to really affect

these options.

But that's another way that you can use these weekly options for your trading advantage.

And again, I'm just going to show you quickly how much difference there is, even in just

these two different contract terms here.

These are the January weeklies which only have four days left until the last trading

day.

And these are just the regular old January monthly options in ten days.

And you can see that there is a drastic difference.

Here, these 1265 puts have about 55 sense of time decay, and the same exact puts on

the weeklies have about 76.

So, you can see that there's a lot higher time decay, and really, you're not getting

much more delta or much more profit per move in the underlying security.

So, again, you want to be careful with these weekly options.

They are becoming very popular, so the liquidity is not a problem for these.

I think that a lot of people are really interested in liquidity of weekly options.

But as you can see here on these S&P weekly options, there were 2500 contracts traded,

all the way down here at 1200.

So, you could easily get in and out of these trades with no hassle really whatsoever.

Okay, I hope this has been good.

And as always, if you have anything else you want to see, please enter your comments in

the section below and I'll add it to the scheduled for the next readers' choice week.