Spread trading weekly options

I am really excited to show you how weekly options can enhance your overall trading, which may add another valuable tool in your trading arsenal. After all, without a basic understanding of options, weekly options will not make sense. Weekly options are options that are listed to provide short term trading and hedging opportunities.

Weekly options expire every week. For the most part, they are listed on Thursdays and expire the following Friday. Cash settled, simply, means that the option contract is fulfilled through the payment or receipt of dollars as opposed to the options shares of stock. As of July 1,the Chicago Board of Options expanded the instruments that one can trade weekly options on. When weekly options first became available, there were only twenty-eight underlying stocks, ETFs, and indices that offered weekly options.

Currently, the list has grown to over offerings, and there will likely be more in the future. To find an updated list of available weekly options, you can check out this link at the CBOE site anytime:.

While there are not as many trading option listings as spread monthly contracts, you should have no problem with liquidity; as these tend to be some of the most popularly traded names in the stock market.

You should be aware of the important differences between a monthly and weekly option. The most obvious is that weekly options expire each week on Friday. Monthly options expire on the Saturday, following the third Friday of the month.

Weekly options expire Friday afternoon at the market close for underlying assets such as stocks and ETFs. The expiration for indices is actually at the close on Thursday with settlement on Friday morning. As mentioned earlier, new weekly option contracts are available each Thursday morning and spread on the Friday of the following week.

Therefore, weeklys have eight days to expiration, although, that is technically six market trading days. Weekly option contracts will be marked differently than the monthly contracts.

Weekly is a screen shot of how they look on my trading platform, thinkorswim:. There is one week each month when weekly options are not available. Weekly options are not listed when there is a normal monthly option expiration cycle monthly options expire on the Saturday following the third Friday of each month.

Technically, monthly options are the same as weekly options for the week in which they expire. In fact, they have the same characteristics as the weekly options during that week. These are some of the main advantages and disadvantages associated with trading weeklys. It is important to trading each of them before you consider trading them. This section will break down what, I think, are the best strategies to use when trading weekly options and when to use them to set up a trade.

This is how it would look if you bought, to open, one weekly call option on the platform thinkorswim:. We have a limited amount of time, so our options has to spread on point. Even though we are paying a cheaper price than the monthly option, we need to be right on things, such as, strike selection, price direction, and amount of time we need. If we are wrong, we could be sitting on a worthless option. In most cases, you should prepare for the worst-case scenario.

The worst-case scenario, here, means you should be looking at how much you are willing to risk, if the contract becomes worthless, and based on that, you should buy the amount of contracts that fit your risk profile for that trade. The only way to make money when you buy a call is when the underlying asset of that option goes higher, the implied volatility rises, or a combination of the two.

If you have a bias in direction, I would consider using a debit spread or another structured trade. This trade is going to be like buying a call, but instead of looking for the underlying asset to go higher, you are looking for the underlying asset to move lower, in order to make money. Again, we will need to be right on things, such as, strike selection, price direction, and the amount of time we need.

If we are wrong, then we could be sitting on a worthless option. Using the same principle as above, when you buy a put, spread should think about the worst-case scenario and base your trade size on the total amount of premium paid and the amount of risk you are willing to take.

Options main way to make money, if you buy a put, is when the underlying asset drops lower, implied volatility rises or a combination of the two. The ideal setup we are looking for when buying a weekly put option is when the stock is on the verge of breaking down lower. Being long a put is different than a call because as the market moves lower, implied volatility will likely increase. If you have a bias in direction, I would consider using a debit spread or some type of other structured trade.

When we sell a call, we are looking to collect the premium of the call strike sold. Selling options can provide a high probability of success and create consistent returns over long periods. However, when you sell a call you define your max profit because you only collect what you sold the option for. When implied volatility is high in an underlying, that provides an opportunity to sell an option. When we sell only a call though, that is bit of a bearish to neutral trade. The outcome you are looking for is that the underlying asset price will not exceed the strike price at which you sold, by expiration.

We collect the full premium, if that occurs. Because we are theoretically exposed to undefined losses, this will require extra margin.

This is ideal for lower priced underlying stocks because they will not chew up your overall buying power. By selling high implied volatility, we are also betting for the volatility to revert to the mean. When we sell a put, we are looking to keep the premium collected from the contract we sold.

Many traders like this trade because it offers some advantages. When we sell a put, we are looking for the underlying asset to stay above the strike we sold, at expiration. As long as it does, we collect the full premium. When implied volatility is high trading the underlying, that is the ideal situation to sell an option. When we only sell a put, this type trade is a bit of bullish to neutral. By selling high implied volatility, we are also betting that the volatility reverts to the mean.

When implied volatility trading, the price of the options loses value, all else trading equal. Selling a put is the same risk profile as a covered call write. Selling a put though, is a better use of capital and provides an overall better return. Selling a put is an inventive way to get long the stock. The only downside to the trade is that you have to be willing to own shares, which would require the full spread of capital to own the stock.

Just like selling a call, this trade requires margin and I generally prefer selling a put spread to define my risk on higher priced underlying stocks. Buying one option and selling another which is further OTM, in the same expiration period.

This is always options for a debit. This is how it would look if we spread, to open, a weekly call and options weekly put spread using the platform thinkorswim:. Similar to buying a call or put, this strategy is playing for a directional move. The major advantage with using a spread is that we are able to reduce our cost basis. This will help increase our probability of success by bringing our break-even points closer. When you buy an option or spread for a directional play, timing plays a critical role.

Anytime you are bias on a direction you should use a spread to reduces your cost and break-even points. By selling an option, against your long option, it will reduce the role of implied volatility.

It is ideal to do a debit spread near where current prices are at and try for a 1: Selling one option and buying a further OTM option, in the same expiration period. This is always done for a credit. This is how it would look if we sold, to open, a weekly call and put spread using the platform thinkorswim:.

A seller of a call or put spread has a better probability than being a buyer of one. By being a seller of a spread, we have defined risk and reward. By selling a spread, we are looking to keep the amount of premium from the sale.

The trade thesis here is that by selling a put spread, we are looking for the underlying asset spread to expire at or spread than the strike, we sold. Unlike selling a put, we define our max risk and are not exposed to unlimited risk to the upside or downside.

If we sell a call spread we are looking for the underlying asset price to expire at or below the strike, we sold. Unlike selling a call, we define our max risk and are not exposed to unlimited risk to the upside or downside.

We need to make sure that, in the spread we sold, the underlying price does not start to exceed the total premium collected, which is our break-even point. Here is an example: When you buy a call or put, we have time working against us. In this case, time spread on our side. While this trade has a high probability of success, the duration on these trades are very short and have high gamma trading. These type of positions are vulnerable to randomness.

That is why these positions will need management that is more active. The strategy consists of a debit spread and credit spread, done simultaneously. This can be done with calls as well as with puts. I like to use this strategy as a directional play after an underlying has made an extended move, typically for a credit. However, this trade is ideal when implied volatility is elevated. The body of the butterfly weekly short two strikes and would benefit from implied volatility decreasing and the underlying staying near the short strikes.

We can buy or sell a butterfly spread; however, I prefer buying them for close to zero cost or a small debit. We can do this by using calls or puts; it just depends on the direction we think the underlying asset is going to move.

I like using this strategy going into an earnings announcement. If we can collect a credit, then we can still make money if we are wrong on direction or if it does not move as far as we anticipated. The best way to get a credit, typically, is by moving the higher leg of the body up one options strike to create a broken wing butterfly.

A butterfly which is not balanced, meaning, one side has more risk than the other does. When we use this strategy, we are looking for the underlying asset price to move in a certain direction, and to expire at the short strike. The short strike would be the body of the butterfly. The first wing is the strike we would be buying to play in the direction of where we think the underlying price will move. If you are familiar with ratio spreads, it would be buying one option contract and selling two option contracts higher or lower than the strike, you are long.

The second wing, to complete the trade, is to define our risk on the position. It also benefits because it lowers the amount of margin required. Most platforms allow you to place this trade as one single order.

Which is great because it reduces the potential of slippage. If we put this trade on for 4 cents, we would look to close out some or all at 8 cents. Selling an OTM call spread and OTM put spread to collect a premium. This strategy is one of the most popular neutral option strategies around amongst retail traders. The trader is expecting the underlying asset price to stay in the range and settle in between the short spread. Whenever we sell options, high implied volatility is critical.

When we put on an Iron Condor, we are looking for the underlying asset to trade in a range. The beauty behind this trade is that it is limited risk in nature. Since time is working in our favor, this is typically a high probability trade.

Trading a near term call and put, whilst buying the same strike as the call and put sold in a further expiration contract. Double calendar spreads have been my favorite, when trading around a stock earnings options. The type of strategy benefits from time decay and the collapse of implied volatility.

The idea is that the short options lose more of their value than the long options in the later expiration do. The reason why this type of trade is useful is because when a big event is about to occur, options as when a company is set to release earnings, implied volatility rises due to the uncertainty of the outcome.

They generally over price the options, weekly into the event. Based on volatility, the price of the option is the richest in the nearest term contract. Here is an example of how the implied volatility in the shorter-term options is more expensive. This is BAIDU BIDU on February 10, going into earnings on February 11, After the event happens, the uncertainty disappears and options volatility naturally drops.

That is why even if the stock experiences volatility, it might not overcome the decrease in option volatility. If this occurs, the near term contract lose value faster than the options we are long. Essentially, we can profit on the difference on the spread bought before earnings and sold after the event. This trade becomes profitable with a move in either direction. Whichever way it moves, one side will start creating profit and offset the cost for the other side of the trade, which will usually expire worthless.

Just as long as the options move delta is not greater than the implied volatility collapse. Again, we are only looking for the underlying asset weekly move to the strike that we sold. If the move is too far beyond the strike price, we will start to lose money. Therefore, strike selection is trading critical. Generally, we want to pick our strike based on the implied move, along with using support and resistance levels.

When we trade this type of strategy, we are playing for a specific event and intend on exiting right after that event. To figure out the priced in move or implied move just take the price of the at-the-money straddle and divide that by the current price of stock.

Sell near term option while simultaneously buying further dated option at the same strike and option contract type i. This is very similar to the double calendar spread. The only difference is that we are only playing for one side of the spread, and by doing that, we are betting on the direction that we believe the underlying asset price will be going.

If I spread a bias on the direction of a stock, ahead of the event, I might look to play it with a calendar. I can look to sell the current weekly option and buy the further dated option. The trade is profitable if there is a move in that direction and the difference in the spread widens.

The only issue with this trade would be if I am wrong on the direction and prices move the other way, aggressively. Then, I would be in a losing trade. If I had a directional bias on the underlying asset weekly over a period of time, I could buy a longer dated option and use the weekly option to sell the same strike against it. This way, I can be long or short the underlying asset with the longer dated option, but continue to sell the weekly and use the profits collected to reduce my cost basis.

In many cases, this creates a zero cost trade. The only issue would be if we sold the weekly options and prices were to expire above the strike sold, then we would need to close out the short and long spread. However, we would look to re-open it that following trading day. Sell near term expiration option while simultaneously buying further dated option at different strike, but different option contract type i.

This is very similar to the calendar spread. The only difference is that you are not using the same strike prices. If I have a directional bias going into an event, then Trading would normally play options with a calendar spread. But if my thesis is that prices will continue to move in that direction, I will look to sell the weekly option and be long the further dated option.

My trade will be profitable if there is a move in that direction, also if there is a difference in the spread after the event. I would then look to continue to stay long the longer dated option and continue to sell the weekly option against it to create more profits or to reduce my cost basis. The only issue with this trade would be if I am wrong on the direction and the price moves the other way, aggressively.

Weekly that happens, or if prices move in weekly direction farther than I expected, then I would be in a losing trade. This way I would be long or short the underlying asset with the longer dated option, but continue to options the weekly options against it to reduce my cost. The difference between this strategy and the calendar is the cost to open the trade. The diagonal could be cheaper in cost because of the strikes chosen. For instance, you can sell the near term options and then buy a longer term option that is a strike higher than the nearer term contract sold.

The difference with the calendar and diagonal is that the diagonal does carry a little more risk between the strikes. In this section, I will go over a few trades that I executed using weekly options along with the thought process behind each trade.

Google was due to release earnings after the close. After looking at the order flow, I was not able to see a clear bias. I knew prices would move because GOOG is normally a big mover. Since I was not able to detect a bias, I went with the double calendar spread. I picked my strike for the trade by adding the priced-in move to each side weekly studied the daily chart, which is highlighted in yellow below. From there, I looked at prices to see how far outside the range they could move.

I recalled what happened to GOOG last earnings and figured that it had more upside than downside. You weekly be wondering why my strike selections were so far out.

The reason is that I was expecting share prices to move. The further I go out-of-the-money, the cheaper the trade is. Since I was looking for a move, my job was to see how far they might move and to pick the right strikes. As I mentioned, I used what the market had priced-in and I charted what the move would look like using support and resistance levels.

The reason I sold the options with one day to expiration, against the weekly options, was that I was just looking for an overnight trade, and they had the highest amount of implied volatility. Using the weekly option reduced my cost, which was more attractive than the monthly. The monthly options, I sold, had one day to trade while the weekly options had eight days. Spread trade was successful because we had a larger than expected implied move of 60 points higher.

The market was slowly grinding higher after just seeing an aggressive move off the recent lows of about eight points. My thesis was that the upside was limited during the next seven days and there was more of a chance for a pull back. Likely, there would be buyers of the dip. As you can see, that is exactly what happened. Shares of AAPL had been trading upward and there was weekly lot of hype around the stock.

Looking at the chart, I saw a slight bullish triangle forming. However, looking at weekly resistance levels, I thought there would be some selling at that level due to the uncertainty in the general market. At the time, a lot of focus was centered on the BP oil spill. Looking at the option order flow, I felt that there was enough of a bullish bias leaning into earnings to warrant a bullish trade.

In many cases, this is much better than trying to trade each option individually. The more premium you take in, the higher chance of coming out on top. Even if that means I can only purchase one contract, I am fine with that. Unlike stocks, there is a ticking clock associated with options, because they are wasting assets. You must be certain on your timing and strike selection. So take it slowly, understand the strategies you have learned and in which situations they work.

You can instantly access WOTIS and learn how to put on your first money making trade that same day. You can start watching these powerful videos today … that will walk you step-by-step on how to maximize returns trading weekly options following my system to reduce risk and generate returns.

As usual, weekly videos come with a day money-back guarantee…making this a risk less investment for you. Terms of use apply. Nothing contained in our content constitutes a options, recommendation, promotion, or endorsement of any particular security, other investment product, transaction or investment.

How To Trade Weekly Options With These 9 Strategies I am really excited to show you how weekly options can enhance your overall trading, which may add another valuable tool in your trading arsenal. What Are Weekly Options? To find an updated list of available weekly options, you can check out this link at the CBOE site anytime: Here is a screen shot of how they look on my trading platform, thinkorswim: Notice how weekly options are marked in red. Some brokers may show them differently.

Advantages So what are the advantages that weekly options give you? Here are a few major advantages: If you are a buyer of options, the weekly options give you the opportunity to pay for what you need. This means that if you are looking for, either, a day trade or a swing trade for one to two days or more, you can buy the weekly option, which requires a lot less capital because there is less time premium in the options. Weekly options allow traders to potentially reduce their cost on longer-term spread trades such as calendar and diagonal spreads by selling the weekly options against them.

Large trading can use weekly options to hedge massive positions or portfolios against event risk. For range bound, or choppy markets, traders that like to sell butterflies or iron condors can do so with weekly options.

If you are a seller of options, weekly is the most important Greek you should be aware of during the last week of trading. Gamma is a lot more sensitive as it gets closer to expiration. This is especially true if prices are near the strike you sold. If you do not properly size your trade and risk manage, weeklys can quickly draw down your account.

If you get greedy and do not lock in your profits, they could turn into a loss trading. Implied volatility is going to be higher with the weekly options versus the monthly. A seller of weekly options holds more risk than a seller of monthly options does.

Near term options are more vulnerable to fast price swings. Trading Strategies This section will break down what, I think, are the best strategies to use when trading weekly options and when to use them to set up trading trade.

Buying a Call Mechanics of strategy: Buying to open a call contract This is how it would look if you bought, to open, one weekly call option on the platform thinkorswim: Buying a Put Mechanics of strategy: Buying to open, a put contract. This is how it would look if you bought, to open, one weekly put using the platform thinkorswim: Selling a Call Mechanics of strategy: Selling to open a call contract.

This is how it would look if you sold, to open, one weekly put using the platform thinkorswim: Selling a Put Mechanics of strategy: Selling to open a put contract. Buying a Call or Put Debit Spread Mechanics of strategy: This is how it would look if we bought, to open, a weekly call and a weekly put spread using the platform thinkorswim: Selling a Call or Put Credit Spread Mechanics of strategy: This is how it would look if we sold, to open, a weekly call and put spread using the platform thinkorswim: Buying a Butterfly Spread Mechanics of strategy: To open this trade, this is what it would like in the platform: Selling Iron Condor Mechanics of strategy: To open this trade, this is what it would like in the thinkorswim platform: Double Calendar Spread Mechanics of strategy: This trade is usually completed for a debit.

More Considerations If I had a directional bias on the underlying asset price over a period of time, I could buy a longer dated option and use the weekly option to sell the same strike against it. This strategy has been one of the more interesting ones with the introduction of weekly options.

Call or Put Diagonal Spread Mechanics of strategy: I trading use this strategy for a few different reasons. Earnings Trade If I have a directional bias going into an event, then I would normally play it with a calendar spread.

Case Studies In this section, I will go over a few trades that I executed using weekly options along with the thought process behind each trade. Double Calendar Spread Trading Event: Earnings Closing Price before Earnings: Here is what the trade structure looks like: Iron Condor Trading Event: None Closing Price on Entered Trade: Here is what the trade structure looked like: Calendar Spread Trading Event: Here is what the trade looked like at entry: Here is what the trade looked like on exiting: Trading Weekly Options Tips Here are some tips that will help you when you approach trading weekly options: Want A Weekly Option Strategy That You Can Use Today?

Not everyone learns the same; I know that. Some of you are fine with just cracking a options open and reading. However, others are more visual spread, relying on images and videos. Secured Full Weekly Options Trading Income System teaching the three main strategies. Disclaimer Privacy Policy Risk Statement Terms Of Use Members.