Weekly options are very similar to regular options. The only difference is the amount of time allowed before expiration. With weekly options, the expiration date is 7 days after the contract is enacted. This makes trading them very fast-paced and current. Making the decision to exercise, trade, or ignore is one that is pressure-intensive when dealing with weekly options.
On the other hand, they can provide experienced and skilled investors with the opportunity to make income quickly. For these reasons, this particular brand of option trading has a number of pros and cons. Those who master it, however, certainly understand the advantages of weekly options.
There are some things to note about these alternative instruments. For one, ticker symbols for weekly options differ slightly from those for longer term options. Take SPX Weekly options for instance. The ticker symbols for their options reflect which week of the month captures the time period for each option. For example, the first week of the month is labeled JXA, the second JXB, the third JXC, and the fourth JXD.
There are also some other distinctions that make weekly options quite unique. For instance, very few stocks are used as an underlying asset in a weekly contract. There are a select minority that are used. This is because most stocks are not quite volatile enough to create substantial short-term option opportunity. Weeklies therefore revolve around stocks that change in market value frequently and rapidly. These volatile stocks make for an interesting and unpredictable 7-day option.
If you’re trading European Weekly Options, as the style is called, you can only exercise the contract on the 7th day. This is very similar to standard European options, which limit exercise exclusively to the expiration date. With American style options, a more liberal system exists. With these weeklies, investors can choose to exercise at any time prior to the expiration date as well as on the final day.
While exciting and often time quickly rewarding, weeklies have a dark side. It also provides you a much riskier, volatile situation to try to predict. If you feel confident in your ability to predict very short-term fluctuations in particular assets, than perhaps a weekly option is the most efficient way to profit off your insight. If you lack confidence in your predictions, perhaps weeklies are not a good decision.
Ultimately weekly options are interesting opportunities that may work differently for different traders, but there is no denying that they offer one more possibility for option investors.
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