Strategy · Education

Weekly Options Strategy

A weekly options strategy that effectively covers several key aspects is vital in successfully trading weekly options. Some of the important factors which a strong options trading strategy must include are choosing which weekly options to trade, knowing when to enter and exit a trade to ensure the greatest potential profit and how to minimize losses.

WEEKLY OPTIONS STRATEGY FOR CHOOSING WEEKLY OPTIONS

The most important part of selecting stocks on which to trade weekly options is to be aware of short term events that are likely to significantly impact the prices of stocks on which weekly options are offered. By predicting the direction that the price will move, a trader can take immediate advantage of this movement with weekly options.

These areas of influence include, but are not limited to the following:

Occurrences within the company itself, such as reporting earnings, announcing mergers or acquisitions, changes in top-level management, or the release of a new product, often affect the price of a stock.

Even an event in one company can affect other companies in the same sector either positively or negatively.

Major economic and political news items regarding issues such as interest rate changes, unemployment rates, and international relations often have a notable impact on stock prices.

Being aware of these events and how they are likely to affect the movement of stock prices is a key component of weekly options strategy, and is a huge area of focus for the research involved in our membership services.

WEEKLY OPTIONS STRATEGY FOR ENTERING TRADES

Knowing when to enter a trade is a crucial aspect of weekly options strategy. Each alert from our weekly trading membership shows the last close, the price the option closed at on the previous day’s trading, alongside the entry parameters.

However, the closing price does not always reflect what the opening price will be, so if the price is higher at opening, a trader must use their own judgment in deciding whether or not to enter at the higher price. It is possible that the market will pull back after opening high, so waiting may sometimes give the opportunity to enter the trade at the suggested price, or perhaps even lower, but of course this doesn’t always happen.

Another choice is to enter the trade at market price on the assumption that the price will continue to perform, and that paying a somewhat higher premium will not significantly impact the profit to be made.

A third choice is to wait and see what happens the following trading day. The price may have dropped to the desired entry point, allowing the trader to enter the trade at an opportune moment. If the price is still too high, it may be wise to wait for the next trade, as weekly options are especially time sensitive.

Another possibility is to enter at market price just before the close of trading, and be prepared to watch what happens when the market opens the following morning.

WEEKLY OPTIONS STRATEGY FOR EXITING WINNING TRADES

The next vital step in effectively applying weekly options strategy in your trading is deciding when to exit a trade. Trading weekly options requires a commitment to being hands-on and monitoring your positions. If this is not compatible with your profile as a trader, you could consider trading monthly options for a more relaxed approach to trading.

We show 20%, 50% and 100% targets for each position, each measured from the price shown with them. On your own plan, work the same three levels out from the price you paid. These are reference points, not a recommendation to hold for 100%. Your own trading profile and risk tolerance may mean taking the 20% or 50% target, while another trader may choose to hold some or all of the position for 100%. This decision needs to be based on your risk profile, and how strongly you believe that the upswing will continue. You might not even wish to wait until 100% is attained, but may be happy with 20% or 50%. There is no one right approach that fits all traders and even an individual trader will often vary their approach at times depending on a variety of factors.

One thing that is very important to be aware of is that you don’t have to wait until expiration to exit a weekly options trade. You can exit at any time you choose, prior to expiration.

WEEKLY OPTIONS STRATEGY FOR HANDLING LOSING TRADES

The other side of using weekly options strategy for exiting trades is when the trade is experiencing a loss. As a guideline, you can consider opting out if a trade is down by 60%, though where you draw that line depends on your own risk tolerance.

It is important to consider the market volatility, and whether or not it is likely that the price movement will change fast enough and significantly enough to make it worth holding on to your position. By holding on, you might be able to break even, or exit with a smaller loss, or in the best case scenario, realize a profit.

Some traders add to a losing position to lower their average cost. The added money can be lost in full. A weekly option is also running out of time.

If you use this approach at all, decide in advance how many times you are willing to add and where you will stop, because a weekly option that keeps falling is running out of time as well as price.

A FINAL WORD ON WEEKLY OPTIONS STRATEGY

When it comes to choosing the best possible weekly options to trade, deciding how much to pay to enter a trade and the optimum time to do so, and aiming for a healthy profit while minimizing losses, your weekly options strategy needs to be solid. Our Weekly Options Membership publishes the research, the entry parameters, our exit guidelines, and the reasoning behind each alerted trade, and you make every trading decision yourself.