Weekly traded options offer a good choice for investors looking for short-term trades. Weekly traded options start their life on Friday morning when the market opens and expire the following Friday at the market’s close. They are characterized by high volatility and -- because of their short lifetime -- experience less time decay than monthly traded options. In addition to stocks, weekly traded options are available on indexes, futures and exchange-traded funds.
Select an individual stock, index, future or exchange-traded fund that has weekly options you want to trade. Use your online account and research the security to see if it is in an uptrend, downtrend, or is trading in a range. Look for any news releases or events, such as a scheduled stock dividend payment, that could affect the trend of the underlying security. Analyze which option trading strategy would be best suited for the trade, keeping in mind that the option has only a six-day life span.
Pull up the security in your trading account. Click on the options tab to bring up the available weekly options. Select call options if you believe the underlying security will increase in price or put options if you think the price will fall. Look at the available strike prices and select the one that best fits your trading strategy. For example, if you think the price of XYZ stock, which is selling at $40 a share, will go higher, you could buy a call option with a $45 strike price that will increase if the stock price increases.
Analyze the security’s chart for a good entry point. For example, you could enter the trade on a downward bounce to get a better fill price. Using your order entry page, enter the option’s symbol, the number of options you want to trade and either buy or sell as the action. Double-check to be sure you selected the weekly option and not the monthly option. Wait until the trade is confirmed before closing your trading window and make sure the option position is listed in your portfolio. Monitor the trade often to be sure it is moving in your anticipated direction and have a predetermined exit strategy in case the trade moves against you.
- Weekly traded options are usually cheaper than longer-term options, so you risk less money on each trade.
- Weekly traded options are more volatile than monthly options. Trade only with money you can afford to lose.
Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.