3 Must Haves for Weekly Option Traders

03/19/2012 11:20 am EST

Focus: OPTIONS

Dan Passarelli

Founder, Market Taker Mentoring, LLC

Those who trade weekly options should take advantage of these helpful resources made available by the CBOE, which can help traders stay up to date on available option products, news, and more.

One of the effects of the seasonality of options (that I talk a lot about with my students) is that premium sellers see the most dramatic erosion of the time value in options they have sold during the last week of the options cycle.

Most premium sellers strive to keep the options they have sold short (also known as options they have “written”) out of the money (OTM) in order that the entirety of the premium they have sold represents time (extrinsic) premium and is subject to this rapid time decay.

With 12 monthly cycles, there historically have been only 12 of these final weeks per year in which premium sellers have seen the maximum benefit of their core strategy. The advent and widespread use of weekly options has changed the playing field.

Options with one-week durations are available on SPX and OEX indices. For variety, they also come in flavors of a mini contract (SPX) and European style (OEX). These options have been in existence since October 2005, but only in the past 12 months have they gained widespread recognition and achieved sufficient trading volume to have good liquidity.

See also: The Best Day to Sell Weekly Options

Standard trading strategies employed by premium sellers can be executed in these options. The advantage is to gain the “sweet spot” of the time decay of premium without having to wait through the entirety of the four- to five-week option cycle. The party never ends for premium sellers using these innovative vehicles.

Traders interested in using these weeklies must understand settlement procedures and be aware of last days for trading.

CBOE offers weeklies on more than 30 different classes including indexes, stocks, and exchange traded funds. For an updated list of available CBOE weeklies, click here.

CBOE offers a weekly e-mail alert to help keep you up-to-date on the weeklies available for trading, as well as other weekly options news announcements. As the list of new weeklies becomes available (usually on Wednesdays) they’ll e-mail it right to your inbox.

To receive these alerts, those with existing myCBOE accounts may click here and select "New Weeklys Available for Trading" (near the bottom of the list).

Those who do not yet have a myCBOE account canclick here and select "New Weeklys Available for Trading" on the My E-mail Alerts subscription page.

An excellent discussion of details is provided on the CBOE Web site.

By Dan Passarelli of MarketTaker.com

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