The difference between the two is how their settlements close when the termination date arrives. And as you may have already guessed, Weekly Stock Options expire every Friday of the month.
Learn more about what they are and about how they work and what their benefits are by reading below.
What are Weekly Stock Options?
Before we go on with what weekly stock options, let’s have a refresher on what options are.
Basically, Options are derivative contracts just like Futures. The only difference between these two derivative contracts is the way their purchases are settled.
Unlike Futures, Options contracts do not require the completion of the trade. They allow investors to enter trades, get exposure to the underlying asset, lock in its price, and even back out of the trade if things don’t go their way.
So, in short, these derivative contracts validate a buy or sell of an asset, option, or currency without obliging both parties to stick to the trade at the termination date.
Diving deeper, options come in two kinds, call options and put options. These can be set apart depending on their function. Call options are contracts that allow you to buy the security, while put options allow you to sell them.
Now, when it comes to weekly stock options, these are options, specifically stocks, whose release comes many weeks from their termination dates.
So when do weekly options expire time?
Instead of the third Friday of each month, weekly stock options end every Friday of the week. And before you ask “what time do weekly options expire on Friday”, we’ll let you know it’s standardized at 3 PM CST, which is the common SPX weekly options expiration time.
But that doesn’t mean that you can’t continue using your long-term strategies just because they terminate weekly.
Trading Strategies for Weekly Stock Options
If you’re new to trading these types of options, here are a couple of strategies you may try:
- Iron Butterfly strategy for Options. The weekly iron butterfly strategy allows you to take advantage of the passage of time and low volatility while also generating profit from it.
- Day trading weekly options. The weekly trading strategy of options has generally cheaper premiums. And to make it even better, day trading them requires you to close your positions at the end of the day, which takes away the need for you to extend the premium until termination.
- Swing trading weekly options. The weekly swing trading strategy is a short-term technique that is ideal for weekly options. Lower premiums and flexibility are a couple of things that make this strategy ideal.
- 21 weekly EMA for options. The Exponential Moving Average is a highly ideal technical indicator for weekly options due to their quick forecasting of future price directions.
The effectiveness of these strategies depends on a trader’s plans and budget. Always make sure to select a strategy that fits your needs and preferences.
Pros and Cons of Weekly Stock Options
Let’s get the obvious out of the way, everybody knows that the short-term process of weekly stock options makes them fluid and flexible.
Weekly stock options also help you cut costs greatly without sacrificing the quality of your trades. The idea of them closing weekly already lets you know that you’ll save tons of money on premiums. Plus, these options have a generally lower premium rate, you may even find stocks with weekly options under $10.
Weekly options have a higher responsiveness to price changes which makes the asset’s volatility impact them greater.
However, due to its short durations and rapid time decay, adapting to the recent changes in the market can be tough. Plus, the open interests and volumes of options don’t always work well in weekly trading.