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?
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
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
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
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