What Are Weekly Options And How To Trade Them

So you want to learn to trade weekly options but don’t know how to trade then or even what they are right? Here’s a short guide to the “weeklys” as they are called in the trading pits.

What are Weekly Options?

Weekly options are simply option contracts with a lifespan of only 1 week as compared to monthly options which have longer expiration periods. In any pricing tab they are more than likely clearly label and therefore easy to find when placing a new trade.

Generally speaking they act virtually the same as monthly expiration options with a few minor differences…

First, they offer a greater delta. This basically means they are more volatile to any moves in the underlying security’s price. Depending on which side of the trade you’re on this could be good or bad right.

Second, weekly options don’t have as high time decay or Theta. Since they are already so close to expiration when they open there’s no need to price in any excess time value premium to the options.

Third, they actually expire is about 6 days. Weeklys are typically issued on Thursdays, and then expire the following Friday, just six trading days later. Surprised their not called “6-day options”.

How to Trade Weekly Options

I have to say that the biggest advantage and benefit to trading weekly options is the high delta, low theta ratio that they have. As option sellers we are always looking for the complete opposite: low delta or volatility and high time decay values. This favorable ratio for weekly options is great for short term option buyers who “think” they can pick the right direction on a given week.

Trading weekly options is completely up to you! Since they are new every week, you can choose to get in and out of the market quickly without exposing yourself to any long term trends or volatility changes. However, be careful that you don’t continue to trade the weekly’s on a consistent basis as they they are a “make it or break it” type of trading tool. The stock or index has to move fast and in the right direction to make money and if it doesn’t then you’re S.O.L.

In our opinion the best way to trade weekly options is for hedging purposes. Say there is going to be some big economic news next week and we are afraid that the market may fall (or rise) very fast after the news. We may buy some weekly options to hedge the risk JUST FOR THAT WEEK. They won’t be that expensive and they give us protection just during the week we want. After that we can continue on with our trades free from fear of a market drop.