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HOW DO WEEKLY OPTIONS WORK?
by Amanda Harvey
How do weekly options work? To succeed in trading weekly options, it is fundamental that you either have a solid basic understanding of the answer to this question, and/or have access to expert guidance.
In the most general
sense, weekly options work in the same way as monthly options.
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HOW WEEKLY OPTIONS WORK - THE BIG PICTURE
Buying options (weekly or monthly options), simply involves buying a contract which gives the trader the right, but not the obligation, to purchase an amount of the shares on which the option is based during a set period of time, at the end of which, the option expires.
The biggest difference between weekly and monthly options is the amount of time between the date of issue and expiration. Monthly options can be bought with expiration dates many months from the date of issue, whereas weekly options are typically listed each Thursday, and then expire on the Friday six weeks later.
HOW DO WEEKLY OPTIONS WORK? (TYPES OF OPTIONS)
There are two basic types of weekly options, weekly call options and weekly put options. Call options are option contracts which gain value when the price of the underlying stock rises. These are used when a trader expects the stock price to increase.
Put options have the opposite function, as they increase in value when the price of the underlying stock drops. Puts are used to take advantage of anticipated decreases in stock prices, and may also be used to hedge positions in the corresponding stocks.
HOW DO WEEKLY OPTIONS WORK WITH PRICING STRUCTURE?
As with all options, the price of a weekly option contract (its premium) is calculated according to many factors including the length of time to expiry, and the volatility of the underlying stock. The premium is a fraction of the price of the stock, meaning that the trader can control an amount of stock for a fraction of the cost of actually purchasing the shares.
One of the biggest advantages of trading weekly options is that the premium is typically lower than that of the corresponding monthly options. The reason for this is that there is less time value built into the cost of the premium.
HOW do WEEKLY OPTIONS WORK IN MAKING A PROFIT?
During the life of the option contract, if the stock price rises (in the case of a call option), or falls in the instance of trading put options, the trader can benefit from the increase in value of the options. This is achieved by selling the option before expiration at a higher premium than they paid for it, immediately realizing a profit.
Weekly options are an ideal choice for taking advantage of events that will affect the market and the stock price movement in the very near-term. Many successful weekly options trades can be entered and exited within a day or two. In these situations, it is unnecessary to pay the extra premium for a longer expiration date, as the intention is to enter and exit the trade swiftly.
HOW DO WEEKLY OPTIONS WORK WITH TRADING STRATEGIES?
Trading options successfully requires the use of various different points of trading strategy. With weekly options, it is important to consider entry and exit strategies, as well as general strategies including capital management.
Weekly options can also be used in many specific types of option trading strategies, such as Covered Calls, Collars, Married Puts, Vertical Spreads, Condors and Butterfly Positions.
WINNING WITH WEEKLYs
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 this sounds like a lot of work to you, don’t worry! Our membership service does all of this for you, so join us today, and start winning with weeklys.
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