Read while you watch
Full spoken transcript
0:00 Buying and closing a contract
Trading a weekly option typically refers to buying a contract and selling that same contract before it expires. You pay a premium to open the trade. Selling the contract closes it. Most US stock and ETF options are American style. Their holders can exercise them any time prior to and at expiration. Most traders close by selling the contract rather than exercising it. Your result depends on what you paid, what you receive when you sell, and any fees or other costs involved.
0:34 Start with the catalyst
Start by identifying a reason for the share price to move within the time available. Traders call this a catalyst. It might be an earnings announcement, a product launch, or an economic report. Pinpoint the expected event, when it's due to occur, and why it could change the share price. Pay close attention to the event date. Without a reason to expect movement soon, there may be little time for the move to happen before time decay reduces the option's value.
1:06 Direction and time
Which direction do you expect the share price to move? With a rise, a call option may offer value. A fall indicates the potential benefit of a put option. That's the direction part of the decision. The size and timing of the move also affect the result. A share can move in the direction you expected while the option loses value. Determine whether the expected move could be large enough, soon enough, to support the premium you're paying.
1:37 The event and the option premium
Choose an expiration date that allows time for the event and the response you expect. A later expiration gives you more time and usually costs a higher premium for the same strike. Buying well ahead of an event means paying for time you may not need. Scheduled events can also raise the option premium, as traders anticipate greater uncertainty and the possibility of a larger price move. After the event, that uncertainty falls away. The premium can fall even when the share moves in your expected direction. Check the option chain for the weekly dates available.
2:17 Check the option chain
Before selecting the contract, use the four checks on the chain from our Weekly Options Explained video to confirm the details and trading conditions.
2:29 Position size in dollars
Decide how much trading capital this one trade should use before placing an order. A bought option can expire worthless. Base the size of the position you enter on being able to lose the full amount paid, including fees. Check the total cost for the number of contracts you're considering. Ask whether that loss would affect money you need for other purposes. If the cost exceeds your limit, the trade falls outside your plan.
2:59 Plan an exit
Write down the exit plan before entering. What price or condition would prompt you to close the position? At what point would you cut a loss? What change would show that your original reason for the trade is invalid? Set a time limit as well. If the expected move hasn't happened by then, there is still time before the contract expires. Leave yourself time to act before it does.
3:26 Broker approval and the order
You'll need a brokerage account approved for options trading. Brokers set their own approval levels. Buying calls and puts usually requires a basic level of options trading approval, though the requirements vary between brokers. Confirm that your approval covers those trades. Check contract fees and how the platform displays the chain. Find out how to enter an order to buy and an order to sell to close before committing money.
3:56 Confirm and monitor
Check the contract and total cost on the order screen before submitting. Confirm that the order has filled. While the trade is open, compare the share price, the option price, and any new information with your written plan. Keep track of the time remaining. When you submit an exit order, confirm that it fills and the position closes. An order waiting for a buyer leaves the trade open.
4:24 Record and review
After the trade, record your entry, the reason you entered, your exit, and the result after costs. Review the trade, and whether your plan worked or not. Did the event happen as expected? Did you follow your exit plan? Note whether timing, the premium paid, or the decision to hold affected the result. Use those notes when assessing the next idea.
4:49 Research and your own plan
Weekly Options USA gives members researched ideas with the contract, the reasoning, a risk note, and exit guidance. We publish the trade record publicly. You can review the research against your own budget, timing, and exit plan. Each member decides whether to trade an idea and how to manage it.
5:12 Before entering
Check the reason, direction, contract, cost, and exit plan before entering, monitor the trade, then record and review the result. This is general information, not personal financial advice. We do the research. You make the call.