Weekly Options offer expiry dates that occur each week of each month.
They provide you with the flexibility to implement short-term trading strategies without paying the extra time value premium inherent in the more traditional monthly expiring Options. This means you can now, more cost-effectively, trade one-day events such as earnings reports, ABS statistic releases and Reserve Bank announcements.
For traditional writers of Options they may help to reduce the risk of an entire portfolio of Options expiring on a single day each month.
Available Stocks and Indices
- S&P/ASX 200 Index (XJO)
- Australia and New Zealand Banking Group (ANZ)
- BHP Billiton (BHP)
- Commonwealth Bank of Australia (CBA)
- Fortescue Metals Group (FMG)
- National Australia Bank (NAB)
- Newcrest Mining (NCM)
- Rio Tinto (RIO)
- Santos (STO)
- Telstra (TLS)
- Westpac Bank (WBC)
Listing Guidelines and Expiries Available
Weekly options have the same characteristics as singles stock and index options but have limited expiries and strikes availble for trading
- Expiry day of the week – Thursday
- Next 3-4 week expiries available
- Limited strikes available – ATM +/- 10 strikes
- Strike intervals are the same as those applicable to standard ETOs
Market Maker Obligations
Similar to standard ETOs, market makers will be obligated to provide a continuous market and also respond to quote requests between 10.00am – 4.30pm for index and 10.20am – 4.00pm for single stocks (AEST).
- Continuous markets will be provided in 4 calls and 4 puts in any 2 expires.
- Quote requests will be responded to in all weekly ETOs.
Buying Weekly Options
During three out of four weeks, weeklies offer something you can't accomplish with monthlies. This is the ability to make a very short-term view on a particular news item or anticipated sudden price movement.
Imagine it's the first week of the month and you expect XYZ stock to move because their earnings report is due out this week. While it would be possible to buy or sell the XYZ monthlies to capitalize on your theory, you would be risking three weeks of premium in the event that you're wrong and XYZ moves against you.
With Weekly Options you only have to risk one week's worth of premium. This will potentially save you money if you are wrong, or give you a nice return if you are correct.
On the flipside, time decay hurts – with only a limited time until expiry the time value of a Weekly Option decays faster than a longer term monthly Option.
Because of their short duration and rapid time decay, you rarely have time to repair a trade that has moved against you, by either adjusting the strikes or just waiting for some kind of mean reversion in the underlying security.
Selling Weekly Options for Income
At first glance it seems simple, four expiries per month – sell Options every week and get more income, but there are risks and costs. The popular trade has been to spread the normal last Thursday of the month risk across multiple weekly expiries.
Calculating the additional premium you receive from selling four expiries a month rather than one sounds attractive. Options theory suggest you should generate two and a half times the premium. But four times the trades means four times the brokerage, coupled with four times the risk of exercise often means costs outweigh the benefits.
Overseas customers have often been using Weekly Options to spread their expiry day risk across multiple expiries during the month.
The well-known pinning action that takes place in monthly Options – whereby a stock tends to gravitate toward a strike price on expiration day – does not seem to happen as much or as strongly with the Weekly Options.
Instead of selling 100 contracts of monthly Options the risk can be spread by selling 25 contracts in each of the weekly expiries.