Weekly options are the rage for all those within the know; people who are sellers of protected calls and opportunities typically. Countless traders never realize that choices were invented for portfolio insurance and safety. Simply because it happens to be approximated that over 80% of options expire worthless, the great probability trade would be to be a seller of options, not a buyer.
Weeklys have been completely all over considering that 2005 and have barely been observed since the choice offerings have been limited to your S&P 500 (SPX) and the S&P100 (OEX). In July 2010 the Weeklys were greatly expanded to offer some of the most traded stocks and indices like Apple, Bidu, Amazon, Intel, Microsoft, Cisco, etc. Even this limited offering yield juicy premiums to savvy buyers.
Today, more than a year later, there are about 100 offerings that cover indexes like SPY, QQQ, RUT, DIA, IWN and more and more stocks like Green Mountain Coffee, Chevron, Exxon Mobile, Wal-mart, Wells Fargo Bank, Bank of America, Potash Corporation, Patriot Coal, Qualcom and numerous others. Prefer ETFs? The Weeklys include some of the best like, GLD and GDX (Gold), SLV (Silver), USO (Oil) and FAS (3x bull), EWM for emerging markets and EWX for Brazil, to name a few. There is now a wide selection and something for everyone. Weeklys come out every Thursday and expire the following Friday. There are no new Weeklys while in the final week where the monthly choices expire. You can just write the next week from the monthly list.
Weekly Possibility Selling Advantages
Write Multiple Times per Month
Selling call alternatives four times a month versus once is an selections sellers dream. No more waiting and waiting for the solutions to expire. With the recent volatility, selections premium have been completely a lot higher and in many cases you can more than double premiums versus using the monthly possibilities. This is a pure cash windfall.
Forecast Eight Days
Setting your crystal ball to look out eight days versus thirty is easier. As traders know, the trend is your friend and it’s much easier to look at what is happening from the week ahead. This also makes it very easy to adjust trades if necessary. There are people times that a stock runs hard, maybe into earnings, and it’s best to step out of the way. With Weeklys, you can exit and still have multiple weeks to collect premium.
Enjoy Accelerated Time Decay
With Weeklys, time decay is greatly accelerated due to their short eight-day life. There have been completely times that call sold on a Thursday morning on introduction eroded more than 25% by Monday’s close. Weekends are now enjoyable more than ever! You can write near-the-money calls or at-the-money-calls and collect the higher premiums due to the rapid time decay.
Sit on the Bench for Earnings Week
Holding solutions around earnings is always risky and with monthly alternatives meant either not writing the call or exiting early? Well, now you can just sit it out. Weeklys offer the maximum in flexibility. You can also trade the news that week before or after the event. Again, you can be in or out of the market weekly. THAT is flexible.
Increase Premiums by Selling Weekly Puts Along with Call Possibilities
Armed with extra knowledge, you can sell put opportunities or put spreads using Weeklys to collect even more premium. It’s like double dipping and no one will ever ask where the money came from. Weeklys offer amazing opportunities to super size returns by selling a naked put or a put spread (to limit risk and to use less margin) for more premium. Just follow normal put selling rules; sell below a strong support point, at least one strike out of the money and maybe more if the premiums are good.
Choosing the put strike depends on your threshold of risk. Most put writers sell the puts in hopes that they actually can get the stock “put” to them, meaning they get to buy the stock at the lower price. That’s a profitable way to get discounts on stocks you want to own anyway. Either outcome can be fine. One way you get to keep the premium and the other is you buy one of your core holdings on sale.
It’s amazing how plenty of experienced traders and fund managers tend not to know much about weekly alternatives. The word is spreading. One minor irritating issue is several retail brokerage houses usually do not offer Weeklys on their platforms. E-Trade and Charles Schwab offer them along with Alternatives Express and Trade King. T Row Price has no immediate plans. Besides the sophisticated direct access platforms like Trader Station, there is Think or Swim (TOS) that offers Weeklys and the ability to download the platform and paper trade for free. There is a lot to know about the various covered calls strategies for up, down or sideways markets. The more you learn, the more you earn.
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