CHOOSING THE BEST WEEKLY OPTIONS TO TRADE

HOW IMPLIED VOLATILITY IMPACTS OPTIONS TRADING

Volatility refers to the amount of fluctuation in the price of a stock or other security. While Historical Volatility measures the actual documented price variation over a period of time which has already passed, Implied Volatility is a method of predicting the probable future volatility that may be experienced by a security price.

Especially in trading weekly options, the level of Implied Volatility is a major determining factor in deciding whether a security is likely to undergo sufficient price movement within the life of the option to make it a potentially profitable trade.

The level of Implied Volatility is actually one of the components used in the calculation of option prices. In general, the higher the volatility, the higher the option premium is priced. This is attributed to the concept that greater volatility offers a better probability of the option becoming profitable within the duration of its contract. An option with a low Implied Volatility is generally priced more cheaply, as there is less likelihood of it reaching its target price within the time-frame of the contract.

PRICING Considerations for BEST WEEKLY OPTIONS TO TRADE

One of the benefits of trading weekly options compared to monthly options is that weeklys are generally priced lower than their monthly counterparts. The primary reason for this is that there is less “time value” built into their pricing structure. When you are trading weekly options you intend to make a fast trade anyway, so the fact that you don’t pay extra for unnecessary time is an advantage.

However, beware of a trap that many traders fall into, which is seeing low-priced options as a bargain. This is not necessarily the case, and it is important to be aware that in the case of options with low Implied Volatility, they may be priced cheaply because they are likely to expire worthless, having failed to reach their strike price.

The exception to the above point is in the case of an option that has low Implied Volatility, but with which there is a strong reason to expect movement outside of this predicted range. A stock that normally trades with a fairly stable price may be about to experience a dramatic and sudden move in price as a result of an unexpected event, and in this situation, a low-priced weekly option may really be a bargain.

Buying weekly options that are nearing their expiry date can reduce their price even further, and if you are able to buy and then sell a weekly option that only has a couple of days before expiration, you may be able to make a good profit for a minimal outlay.

BOTTOM LINE ON THE BEST WEEKLY OPTIONS TO TRADE

When selecting the best weekly options to trade, it is important to choose options that have a very high probability of making a significant increase in value within a short period of time. Considering the Implied Volatility in trading options is an important factor, as it gives a good indication of whether the price is likely to move sufficiently within the time before expiration. Even more important is to focus on trading weekly options that are expected to undergo dramatic price movements because of events affecting the underlying stock price.

When trading weekly options, you need up-to-the-minute knowledge of the events affecting the market, as well as an understanding of which weekly options to trade, how much to pay for these trades, what strategies to use, and when to enter and exit each trade.

If you don't have the time, desire or know-how to do all this yourself, become a member of Weekly Options USA! Our membership service does it all for you, and lets you enjoy the benefits of trading weekly options with minimal effort.