SWING TRADING WEEKLY OPTIONS

WHAT IS SWING TRADING?

Swing trading is an option trading strategy designed to take advantage of an anticipated change in the direction in movement of a stock price. The goal of swing trading is to buy an options contract around the time it is going to change direction. This change of direction, or ‘swing,’ allows the trader to buy at a low price and then to take advantage of part or all of the swing in the opposite direction.

In many scenarios that are well suited to applying a swing trading strategy, a stock price has been trending downwards for a while. However, there is an event on the horizon, such as a new product launch, or a merger or the signing of a major deal. This event, or catalyst, is expected to jolt the price out of its downward movement, and swinging strongly upwards.

While it is not easy, or perhaps even possible, to predict the exact time at which the price is lowest, analysis can pinpoint fairly closely the optimum time to enter the trade. Buying just before or after the price hits its lowest point positions a trader for gaining the most potential profit from the trade.

Once a trader has entered a swing trade at a desirable price, the next consideration is how long to ride the upward movement. Again, analysis and careful monitoring can ensure that a trader attains the best possible advantage from the trade.

It is important not to get caught out by holding onto a swing trade too long, believing that the sky is the limit. Doing this may result in your trade hitting the branch of a high tree, and plummeting before you have a chance to secure your profit.

There are various strategies that can also be applied within the strategy of swing trading that can help you to protect some or all of your profit. These include the use of stop limits and in the case of having multiple contracts, selling these contracts at different price points.

BENEFITS OF SWING TRADING WEEKLY OPTIONS

Swing trading weekly options is an ideal way to employ a swing trading strategy. Most anticipated swings happen within a short period of time, and weekly options are specifically designed for short-term trades.

The greatest benefit of using weekly options for swing trading is that you can usually pay a lower premium for a weekly option – especially one that is nearing its expiration date. There are a lot more choices of expiration dates with weekly options than monthly options – three or four per month compared to just one. This gives you the flexibility of choosing the expiration date that gives you just enough time to enter the trade before the catalyst occurs, and to hold onto your position for most if not all of the swing.

Let’s say that you are expecting XYZ stock, which has been trending downwards, to reverse next week after reporting earnings on Wednesday. It so happens that next week is the third week of the month, which means that it is the week in which monthly options expire. If you buy the monthly option that will expire next Friday, it may not give you enough time to ride the expected swing to its full extent. If you are only swing trading monthly options, it would mean that you might need to take the option with the expiration date for next month. This would likely translate to paying a significantly higher premium for the inclusion of an extra month in time value, when in fact you only need an extra few days. This is when you may become aware that swing trading weekly options is an excellent choice, as you can take a contract that expires the following week, giving you just enough time to watch the swing play out more fully, without paying for unnecessary extra time.

IN CONCLUSION

Swing trading is a short term strategy that aims to profit from imminent changes in the movement of price, and weekly options are instruments which are specifically designed for short term trades. This makes the combination of swing trading weekly options a perfect pairing.

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.

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