How to Use Weekly Options to Avoid Earnings Reports

09/15/2015 8:00 am EST

Focus: OPTIONS

Alan Ellman

President, The Blue Collar Investor Corp.

As options have gained in popularity over the past several years, more and more products have been made available including weekly options, so options expert Alan Ellman, of TheBlueCollarInvestor.com, outlines how short-term option sellers can take advantage of these Weeklys.

In the BCI methodology, we never sell a covered call or cash-secured put on a stock with a projected earnings report date prior to contract expiration. When selling our traditional monthly options this means we are only able to use a particular stock for eight months of the year because most companies report earnings on a quarterly basis. This is rarely a problem because we have so many elite companies to choose from, our watch lists should have between forty and sixty eligible candidates each month in addition to exchange-traded fund candidates. As options have gained in popularity over the past several years, more and more products have been made available including weekly options. Weeklys options are options that are listed to provide expiration opportunities every week. Weeklys are typically listed on Thursdays and expire on Fridays, provided that such expirations were not previously listed (i.e, Weeklys are not listed if they would expire on a third Friday). Many Weeklys are listed several weeks prior to expiration. Short-term option sellers can take advantage of Weeklys to use a favored stock forty eight weeks out of a calendar year, avoiding that security only the four weeks of the year when earnings are projected to report.

How to Use the BCI Premium Watch List to Locate Stocks with Weeklys

chart
Click to Enlarge

Note the Following:

  • The red arrow at the top of the chart shows the column that identifies stocks with weekly options showing a Y for yes
  • The three rows at the top in gold color show the stocks that have passed all our screens but have projected earnings report due out in the current contract (not calendar) month
  • PANW and AMBA both have Weeklys associated with them and therefore can be used in three of the four weeks of the current contract period
  • The red arrow in the middle of the screenshot shows the July 16 projected earnings report date for SWKS, a stock on our Premium Watch List for forty one weeks at the time I created this screenshot

Viewing an Options Chain for Weeklys

chart
Click to Enlarge

Note the Following:

  • The June contracts expire on June 19
  • The July contracts expire on July 17, the day after SWKS is projected to report earnings
  • The screenshot shows the availability of some lower strike Weekly June 26 options for SWKS. These expire on June 26.
  • Other choices that will be available are the July 3rd and July 10 Weeklys
  • We will avoid the July 17 monthly option and continue (after the earnings report passes) with Monthlys until the next earnings report date approaches

Discussion

A significant percentage of stocks that are eligible for short-term option selling have weekly options associated with them. We can then use these expiration dates to leverage the underlying securities up to forty eight weeks per year using our option selling strategies.

By Alan Ellman of TheBlueCollarInvestor.com

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