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Do I use weekly options as part of my overall strategy?
It’s a question I’m often asked. Up until the last few years, it was a question I answered with a resounding “NO.”
Weeklys, as they are known in the options world, are not even a decade old. And like most new financial products, it took them a while to grow in popularity. As you can see in the CBOE’s (Chicago Board Options Exchange) chart below, it wasn’t until the last five years that weekly options were a viable product.
But the landscape has changed.
The increase in the popularity of weeklys has made for highly efficient products that offer tight bid/ask spreads, a necessity for professional options traders and those in the know. Because without a tight bid/ask spread you often have to make 10%, 15% and upwards of 30% just to break even on a trade.
Who wants to make a 15% return, not including commissions, before a profit occurs? It doesn’t make sense. That is why I was so hesitant in the beginning. I wanted to see volume, followed by tight bid/ask spreads before delving into the world of weeklys. But as I said before, the landscape has changed.
Now we can trade up to 40 different highly liquid underlying stocks and ETFs. But that’s not the only change.
When weekly options were introduced, the products offering weeklys only used what is known as standard expirations or expiration that had a lifespan of eight days. Now we have the ability to trade weeklys with expanded expirations going out far as six, even eight weeks in some cases. Expanded expirations offer options sellers, like myself, a more fine-tuned way to take advantage of the rapidly accelerating time decay that occurs during the final week of an options life.
If you would like even more ideas regarding options trading, don’t forget to sign up for my free weekly options report, The Strike Price.
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