Understanding Weekly Options

01/27/2013 6:00 am EST


Marty Kearney

Senior Staff Instructor, The Options Institute, CBOE

The Option Institute's Marty Kearney discusses the weekly options and why they can be attractive to both buyers and sellers.

I am here with Marty Kearney talking about the weekly options and there is a lot of excitement surrounding these new financial products and what they can do for a trader with a short-term time horizon.  Can you tell me more about what that is?

Absolutely, Rob, and good to see you again.  The weekly options came about as somewhat of a pilot program.  We have always had the monthly option expiration.

When you think about it, we have had options with one week of life left once a month for the last 38 years or whatever so the weeklies have been out there.  We added the weeklies.  We currently have weekly options on a little less than 200 stocks, ETFs, and indexes, and the interesting thing about weeklies is that the premium is so cheap with only a week to go that we have buyers but we also have people that are natural sellers.  They might have a one-and-a-half or two-month option and they don’t think anything is going to happen.  Maybe they will sell that one-week option against it.

What we do now, Rob, is, as you know, on Wednesday night, all of the exchanges get together and decide what are we going to add tomorrow, Thursday, for expiration the following Friday.

Right.  What is the list?

What is the list?  The list pretty much stays with the same cast of characters.

I have noticed that.  I follow it every single week.

The usual suspects, but they occasionally will drop a stock based on it that just had earnings this week and we don’t need it next week but XYZ is coming out with something interesting next week, a product announcement or earnings or something.

Okay, so then that might be an interesting stock to add.  Now, we added something, I know this is being taped, but we added something mid-November.  We are now experimenting by adding 10 different stocks that have weekly expiration going out for four consecutive weeks.

Ah, so the little bit of an advance warning that some of these are going to be, right.

Well, yeah, for example, with expiration tomorrow let’s say, all right.  We just added the options for next week but in stocks like Apple and GLD, the Q’s, the SPY, the XLF, why don’t we have options expiring on Friday every Friday for the next four weeks until the next expiration.

So, that is interesting, I think, because there have been times where I’ve been thinking I sure would like to sell that weekly option but the premium is not there. 

Okay, I don’t want to be on the hook for another four or five weeks, but if I could sell a two-week or a three-week option, this could be something.

It gives a lot of variety and options to traders who are looking for a little bit more variety than just that 30-day expiration.

Absolutely.  The weekly options on the volume, it has been changing, it is a moving target, but it has been about 10% to about 12% to 13% of our volume, so there are a lot of people playing the weekly options because they are cheap and, if you are right, that gamma kicks in and it’s going to work for you and, if you are wrong, you have limited risks.

I think the weeklies are a very, very interesting product, whether it is a stock, an ETF, or an index.

This is a great example of the type of things that you are doing to fit the products to the strategies that traders want to do.

Oh, absolutely.  This is something that we have been asked for several years.  Can’t we have more, we went from monthly to weekly, but we need more, and we are going to give it try and see what happens.

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