Weekly Options Trading — Explained
Options are all about leverage.
They give traders the opportunity to make big gains, or big losses, by playing short-term price swings in the market.
But our topic today, weekly options, take leverage and short-term trading to a whole new level.
Essentially, weekly options make options a day trading tool, allowing traders to get in and out in a matter of days … or sometimes just hours.
This has helped weekly option expirations become an extremely popular trade — placing bets on single-day moves looking for huge rewards.
Many short-term traders have flocked to them.
It’s why I want to dive into this type of options contract this week…
The Excitement Around Weekly Options Trades
So, why all the excitement?
After all, we use monthly options expirations to capitalize on short-term moves in the market.
The short-term moves we are talking about with monthly options last a few weeks. In my Quick Hit Profits strategy, we use monthly options for fast gains. But our typical hold time is still four to eight weeks.
Monthly options expire on the third Friday of their respective month.
Weekly option expirations, also known as weeklies, act just like a normal monthly option — same terminology … same strike prices … same number of shares.
But a weekly option expires every Friday of its respective month.
A strategy built around a weekly expiration date will see hold times of 10 days or less. Some trades will even open and close on the same day.
This is possible because with an expiration every Friday of the month, you can pick an option that expires in just a few days.
It’s the ultimate leverage for a price move that may only last one day.
By using weekly options, you have the chance to turn quick 1%, 2% or 4% jumps in the market into much larger 25%, 50% or even 100% gains.
Monthly options can capitalize on the move too, but they’re limited by their more rigid schedule. If you were betting on a price move at the beginning of the month, that monthly option that doesn’t expire for another few weeks isn’t going to jump as much as you’d like.
That’s why investors have flocked to weekly expirations. They can gamble on earnings and hit some potentially big winners.
But the challenges around extremely short-term trading strategies can be overwhelming.
The winners can come fast and big, but the losses can come even quicker and eat away at your portfolio.
That’s why we always preach that you need a profitable strategy to follow, regardless of whether it’s monthly or weekly trades.
It wasn’t until 2005 that the Chicago Board Options Exchange — the organization that handles how options are traded — finally introduced the weekly option expirations.
They have surged in popularity in recent years as traders look for even more leverage and even shorter-term gains in the market. Still, weeklies are not widely available.
Only the largest U.S. stocks and exchange-traded funds offer them. And even then, not a lot of people trade them.
More Opportunities With Weeklies
The bottom line is that weekly option expirations open up more opportunities with options throughout any given month.
And if you know how a normal monthly expiration works, you already know how a weekly works.
So, strategies where you expect a reversal or where you trade on breakouts still work using weeklies.
You’ll just want to shorten your focus to swings that may only last a few days. With the extremely short-term nature of weekly option expirations, you don’t want to plan for anything that may take weeks to play out.
That’s the biggest thing to keep in mind: If you expect it to take weeks, you need to use a monthly option. If you expect a pop or drop over the next day or two, then weekly options help you maximize that opportunity.
Weeklies are a fun way to profit from fast price moves. But they still require some practice to get right.
And that’s why we’re here with the Weekly Options Corner — to show you how to trade options with lower risk and better profits.
I don’t have any services that recommend weekly options right now, but … I’m working on a brand-new service that focuses on price moves that happen in 10 days or less. Weekly options are going to be our No. 1 way to capitalize on these fast price moves.
As we put the finishing touches on it, I’ll be telling you about how I use these expirations for quick, triple-digit returns every month. More on that later…
Next week, we’ll jump back into monthly options. I’ll walk you through a recent options trade from my Quick Hit Profits service to give you a few pointers.
It’s a trade that didn’t work out for us, which makes it a great example of managing losses in a proven trading strategy.
Chad Shoop, CMT
Editor, Quick Hit Profits
P.S. As I said, none of my research services use weekly options right now. But my colleague Mike Carr has unveiled an ingenious new trading strategy that uses them every week. Investors make the same trade on the same ticker symbol in and out once a week, and they can target gains of 10% … 50% … even 100% or more every time. For full details, click here.
Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.