Weekly Options: Pros, Cons and Strategies

With the ever-rising popularity of options trading in recent years, weekly options have also seen more activity on the market than ever before.

These short-term options offer unmatched temporal precision, allowing traders to expand their strategic arsenal and better take advantage of today’s rapid-paced markets. 

Still, many do consider weekly options trading to be a form of gambling, and understanding the inherent mechanisms, risks and disadvantages remains an essential first step in increasing your chances for long-term success in this fast-spaced trading space.

What Are Weekly Options and How Do They Work?

Weekly options were first introduced by the Chicago Board Options Exchange (CBOE), back in 2005, and have since evolved to encompass a much broader array of ETFs and stocks.

Unlike standard options, which always expire on the third Friday of each month, weekly options, as the name suggests, have a lifespan of a single week, most commonly being listed each Thursday and expiring the following Friday.

This significantly expands your number of profit opportunities within a single year, from 12 to 52, but the quicker nature of weekly options also hampers your ability to manage like you can with standard options.

Finding a balanced approach to trading weekly options is therefore the main goal that needs to be achieved in order to be successful in the long term, as shorter lifespans and faster times of decay, along with higher levels of volatility, make way for more profit opportunities and increase the loss chances.

The same goes for premiums, which are lower than with standard options, allowing you to be more agile in mitigating losses, but also coming with less overall profit in return.

Strategic Trading with Weekly Options

In order to increase your long-term success chances, you should employ at least one or more of the established weekly options trading strategies.

Time Decay

Also known as theta decay strategy, this approach is easily the most popular and powerful option right now, and is based all around capitalizing on the acceleration of time decay as the expiration time of an option approaches.

To do this, you can either sell naked puts when you’re bullish on a stock, and predict that it will stay above the strike price in hope they expire worthless, or you can sell covered calls, where you sell call options against a stock you already own and collect the premium if the stock does not rise above the strike price.

Earnings Plays

Trading around earnings reports is another strategy where weekly options can be particularly powerful.

Strategies like straddles or strangles can be employed to capitalize on the volatility without having to forecast the direction of the stock movement.

These options strategies involve buying both calls and puts with either the same strike price (straddle) or different strike prices (strangle), betting on significant movement in either direction.

Event-Driven Trades

Besides earnings, other scheduled events can create profitable trading opportunities as well. For weekly options, you can speculate on outcomes from FDA announcements, economic data releases, or other significant news events.

This approach often involves directional bets, where you buy calls in anticipation of a positive announcement or puts if you believe the news will be negative. 

The other way you can approach event-driven trades is by using weeklies to hedge against a known event risk in order to minimize the cost while protecting your other investments.

Swing Trading

Another good strategy for weekly options trading is to trade the weekly price movements in order to capitalize on the natural ebb and flow of stock prices, in which you can use technical analysis in the form of RSI or moving averages in order to recognize signals and determine entry and exit points for trades on weekly options. 

You can also use support and resistance in swing trading, buying calls at support levels or puts at resistance levels, or vice versa for reversals.

Calendar Spreads

Last but not least, you can use the strategy of buying and selling options with different expirations but with the same strike price, which is the nature of calendar spreads. 

In the case of weekly options, this can involve selling a weekly option with a close expiration date in order to buy a monthly option, taking full advantage of the faster time of decay of the weekly option.

Indexes With Weekly Options

As we mentioned earlier, weekly options are now available at many more indexes than when they were first introduced, and some of the biggest ones you can trade on today include:

• S&P 500 Index (SPX)
• Dow Jones Industrial Average (DJX)
• Russell 2000 Index (RUT)
• Cboe Global Markets, Inc. (CBOE)
• MSCI EAFE Index (MXEA) and MSCI Emerging Markets Index (MXEF)

Bottom Line

Weekly options have emerged as one of the more popular trading venues in modern times, and can certainly be used to great success, but as you can see, these options do come with higher risk and volatility than standard options, which is why we recommend them to more experienced traders, and suggest that beginners first develop their skills in standard options trading before dipping their toes in this fast-paced trading space.