Weekly options are option contracts that only exist for eight days, which differs from normal option contracts that exist for a month.
Weekly options give option traders the opportunity to profit on a week to week basis rather than waiting to profit from month to month. By reading this article, investors will learn everything there is to know about weekly options so that they are prepared to trade them in their own investing portfolio.
The Chicago Board Options Exchange created weekly options in 2005 as a result of more investors getting involved in option trading. Popular indexes, ETFs, and stocks can be traded with weekly options. See the current list of available weekly options on the CBOE website.
Weekly options function the same as monthly options. Thus, a weekly option contract grants the buyer of the contract the right, but not the obligation, to buy or sell an underlying security at a strike price before a certain expiration date. Weekly options are typically introduced on Thursday and expire eight days later on the following Friday.
Because of the shorter time until expiration, weekly options are generally cheaper than monthly options. This is because options with more time until expiration have a higher likelihood of expiring “in-the-money,” and thus, are more expensive.
Another advantage of weekly options is that they give traders the opportunity to place a short-term bet on an underlying security’s anticipated price movement from a news event such as an earnings announcement or economic report.
For example, assume it is the first of the month and the earnings report for Amazon (NYSE: AMZN) is going to come out this week. The share price of AMZN is expected to change after their report comes out. An investor could buy a call or put option to profit off of the change in price. In this scenario, it is better for the investor to buy a weekly option instead of a monthly option because the weekly options are cheaper than the monthly options, and therefore, the investor risks less.
Weekly options are important to know and understand. They offer the opportunity to make a quick profit but are also risky and could lead to a quick loss. Investors should strategize and approach weekly options similarly to the way they would approach monthly options. Just keep in mind that the only difference is the time until expiration.