Now’s A Great Time To Use Weekly Options
Well, it was only a matter of time before volatility returned to the market. After all, equities weren’t going to go up forever without at least a little selling now and then.
Fortunately, I don’t believe the fundamentals support a sustained selloff. Yes, China’s economy isn’t as strong as expected. And, that’s not a great sign for the global economy. Nevertheless, the US economy is still improving and so far, corporate earnings have been decent. I think this volatility will pass sooner rather than later.
And while market volatility may be hard to stomach at times, it often provides excellent trading opportunities – especially for options traders.
One great way to trade options during volatile periods is by using weekly options.
In case you’re not familiar, weekly options are just like regular options except they expire at the end of each week instead of once a month. Basically, weekly options allow traders to focus on short-term trades and strategies.
For instance, companies often release earnings in different weeks than when standard, monthly options expire. For traders who only want to trade earnings, that means there’s additional risk involved. That’s because buying a monthly option involves paying up for additional time value (higher price = greater risk).
However, weekly options tend to be cheaper because you aren’t paying for additional time value. Moreover, they have the added flexibility of expiring every week – for the many traders who like to utilize options strategies focusing on expiration.
Weekly options are available on most of the major ETFs and the vast majority of popular stocks. More of these short-term options are added every month as their popularity surges.
There are, however, some drawbacks to weekly options.
Because of their short-term nature, there is almost no leeway with weekly options. If your trade moves against you, there isn’t enough time for it to recover.
What’s more, you only have a week window for your trade thesis to work. Earnings may be predicable, but with other events, that’s not always the case. You don’t want to put on a trade using weekly options only to have them expire before the event you’re waiting for actually happens.
Overall, weekly options are an excellent addition to an options trader’s toolbox. Just be sure you use them carefully. During volatile periods like we’re in now, weekly options can be a great way to profit off of big market moves over the short-term.
Yours in Profit,
Gordon Lewis
Category: Options Trading
