Weekly options are short-term option contracts that allow traders to profit from quick moves in the underlying stock. When weekly options were first introduced, there were only four index-based options to choose from. Now, there are a wide variety of weeklies available to trade on popular stocks and exchange-traded funds (ETFs).
How to Use Weekly Options
Weekly options can be used the same way you would utilize a traditional monthly option — except expiration dates are available every week of the year, instead of just 12 times a year. There are many reasons to add weekly options to your repertoire, including the ability to capitalize on short-term moves, minimize the effects of time decay, and hedge event-related risk.
3 Reasons to Trade Weekly Options
Thanks to weekly options, the most popular stocks and ETFs now have options expiring every Friday — which means you can fine-tune your trading time frame for maximum precision. There are three primary ways traders can take advantage of 52 expiration weeks a year:
- Maximize leverage on short-term directional moves. Buying calls and puts to speculate on a very short-term directional move with weeklies affords the option holder increased leverage , as well as decreased exposure to time decay , relative to longer-term options.
- Affordably hedge event-related risk. Weekly options can be used to implement a ” protective put ” strategy on stocks and ETFs, which helps you limit losses on your shares when there’s concern about downside risk stemming from a specific, known event on the calendar (such as a quarterly earnings report) — without shelling out the higher time value for a longer-term put option.
- Implement premium-selling strategies over shorter time frames. Selling weekly puts and calls over a time frame of days allows traders to capitalize on expected levels of technical or options-related support and resistance — or to profit from over-inflated implied volatility — while giving the underlying stock less time to move against you.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.