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WEEKLY OPTIONS TRADING
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Weekly Option Income Trade

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THE WEEKLYS

Just as their name implies, the weeklys (spelled ‘weeklys’ and not ‘weeklies’) are a newer type of option trading vehicle created by the CBOE with a life span of only ONE WEEK (actually 8 days).

Before weekly options came along, the shortest time frame option that was available to option traders was the standard 1 month option (30 days).

In addition to the one month out series, there are also longer term options available, ranging from two to several months to very long term options with life spans of a year or more which are known as LEAPS.

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WHEN & WHY WERE THEY CREATED?

Weeklys were created in 2005 by the CBOE as a way to provide additional trading products as well as a way to provide option traders with a more efficient and cost effective way to trade and hedge option positions.

For the most part, weekly options act exactly as standard options, the only difference being their time to expiration.

When they were first launched in 2005, the weeklys were available on only four indexes: SPX, OEX, XSP, and XEO.

In June of 2010 the CBOE began to include other vehicles, listing weeklys on a number of other indexes, ETFs, and stocks.

While it took awhile for weeklys to become popular with the retail trading crowd, towards the end of 2010 volume really took off and has been increasing ever since.

WHAT CAN WEEKLYS BE TRADED ON?

Currently weekly options are available on a handful of stocks / ETF's / Indexes - and as they continue to grow more and more popular, this list of stocks / underlyings that have weeklys continues to grow.

The majority of these are the bigger and more well known high volume stocks and indexes, such as GOOG, AAPL, AMZN, SPY, IWM, SPX, RUT, ect.  – however, on some weeks some lesser known stocks / underlyings can be found in the series list.

And, while many of the same stocks / indexes have weeklys issued for them every single week – some may have weeklys one week and not the next.

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FINDING THE WEEKLYS IN THE OPTION CHAIN

To identifiy weeklys in an option chain, look for an ‘added number’’ directly after MONTH – but before the YEAR of the listed options in the chain.

For example, a typical option chain will look something like...

In the first column, we see JUN1 13 (3)100 (Weeklies) printed in RED.

In the second column, we see JUN 13 (17) 100 printed in WHITE.

The first column (printed in red) is the option chain for the weeklies.

The ‘1’ directly after the word JUN tells us that this is the first week in JUN.

If these were the weeklys for the second week in June, this number would be ‘2’

The ‘13’ is the year: 2013

The ‘(3)’ tells us how many days left until expiration (3 days) – and will change with each passing day until we finally reach expiration day in three days.

And the word ‘Weeklys’ just tells us that these are the weeklys.

The second column (in white) are the standard 30 day options.

Keep in mind that some stocks might also have MINI OPTIONS as well as QUARTERLY OPTIONS listed along with their standard monthly options and LEAP options. Usually they are all 'tagged' - or listed - as to if they are Quarterly, Mini, or Weeklys.

Of course, if you ever have any confusion or are not sure just ask your broker.

WHEN ARE WEEKLY OPTIONS ISSUED?

For stocks that have weekly options, each new series of weekly options come out every THURSDAY – 8 days before expiration.

Previously, each new series of weekly options were issued on Friday mornings  – 7 days from expiration – however the CBOE soon changed the initial ‘issue date’ to Thursday mornings – where it overlaps the previous weeks expiring options by one day.

This change added an additional day to the weeklys lifespan. Instead of listing the new series each Friday, they began to list each new series on Thursday, with expiration remaining on the following Friday. This was done to give traders the ability to roll their weekly trades from one week into the next.

Another thing to note is that there are NO NEW WEEKLY OPTIONS issued during the week where the standard ‘monthly options’ expire – which is the third Friday of every month.

During those weeks (the weeks where the normal standard ‘monthly options’ are expiring) – the expiring monthly options act as the weeklys for that particular week. So in a month where there are only four weeks – there will only be 3 sets of new weekly options issued – and the regular expiring monthly options will act as the weekly options series for the remaining week.

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THE PROS and CONS of WEEKLY OPTIONS

One of the main things about weekly options is that they are CHEAP.

For the more speculative trader, they allow for a very cheap way to get involved for a short period of time - for example doing a trade around an earnings or FDA announcement.

For the Option Income Trader - those traders who like to trade Iron Condors, Credit Spreads, Butterflies and Calendar Spreads - weekly options provides a way to earn that 'trading income' much faster - and more often.
 
BENEFITS of WEEKLY OPTIONS:
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You can make profits faster
Losing weeks can be recovered quicker
There is good liquidity
You are getting more 'Theta' with your trades
You are less vulnerable to implied volatility risk
 
 
NEGATIVES of WEEKLY OPTIONS
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There is more price risk
There is much less time to react and/or adjust
Gamma can kill you
There is the tempation to just go ahead and let the options in your position expire worthless - where when trading monthly options you might be more likely to take a trade off once your profit target has been reached. With weekly options you need to stay protective of your profits

WIth weekly options probably the biggest danger is in PRICE RISK - PRICE MOVEMENT. If the underlying you are trading makes a large unexpected move against your position - with weekly options there is little to no time available to react.

However, if you are able to remain disciplined and flexible - and you have a solid weekly options trading plan (keep reading and we'll show you one) - weekly options can provide a GREAT way to generate income and even big profits from the market - at a much faster rate - and with a lot LESS time needing to be invested in front of your trading screen.


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TRADING OPTIONS FOR CONSISTENT INCOME

 
 
 

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