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.