The Power of Trading Weekly Options

I love trading liquid weekly options, they are amazing tools if used correctly. Weekly options give a trader leverage, risk management, asymmetric trades, and the ability to make triple digit returns on capital at risk. I know of no other tools that have such upside and limited downside. And many of the weekly options like SPY, IWM, QQQ, AAPL, and GOOGL very liquid so a trader can get in and out them without losing money in the bid/ask spread like you do with so many farther out dated options. The weekly options that are very close to at-the-money strikes have spreads as small as nickels and dimes during the open and the close of they trading day.  The open interest of an option is a big tell for the option contracts potential for liquidity, you will see this on sites like Yahoo! Finance. The less option interest the more danger you will have not having the liquidity there when you go to exit your option trade.

I prefer to use weekly options as surrogates for stock during trends of accumulation and distribution, I trade in-the-money weeklies to capture directional trades. Weekly in-the-money-options can be used like synthetic stock option plays when you have over a .85 Delta to create the close to the same potential profit dynamics of owning the stock without the downside risk of owning the actual stock shares for a week or the need for the full capital outlay. Of course long weekly options are a net debit instead of a selling a short option to buy a long one and create the traditional synthetic stock option play that acts just like owning the stock. With a traditional synthetic stock option trade you sell equal puts to have enough of a credit to buy a long calls and the position acts just like you own the stock shares with a positive and negative Delta that is even. The traditional synthetic stock play with options gives you the same downside as owning the stock does while simply owning the high delta weekly calls caps your loss at the contract price. That is how I use weekly options, to own the movement of a stock in the cheapest way possible.

  1. You can get a lot of leverage for your capital with weekly options. There are many times on Thursday and Friday that you can control 100 shares of Apple or Google for $100-$500.
  2. With weekly options you get the full upside potential of a trade moving in your favor but the downside is capped by the price of you option contract.
  3. It is easier to manage risk, if $400 is 1% of your total trading capital you can buy a $400 weekly option contract so it will be impossible to lose more than 1% of your capital no matter how it moves. If its value drops in half you will lose 0.5% of your total trading capital if it goes to zero you will lose 1% of your total trading capital. If the option contract doubles in value you will have a 1% total return on your capital. If the option contract triples in value you would have a 2% return on your total trading capital.
  4. Many times on Thursday and Friday in-the-money options have a  +.90 delta and capture 90% or more of a move in the underlying stock, you just have to be right about the direction not the price like you do with out-of-the-money monthly options.
  5. Weekly options are versatile, you can roll them over for trend trades or just trade them for day trades. You can stay in a trend with weekly options by selling to close the one you are in and then buying the next weeks option for less capital with a strike back closer to the money. This way you take the money off the table of your winner and buy a new option to continue to follow the trend.
  6. Most trades will save transaction costs with weekly options because option commission costs are in most cases cheaper than the commission costs for stocks and for the commission cost of one option contract you will control 100 shares of stock.
  7. Weekly options are the most liquid of all stock options so you eliminate the expense of wide spreads form your costs a and option trader. The bid/ask spread does not cost a lot of money to get in and out with the top traded weekly options with the most open interest.
  8. With trading weekly options on the long side only you do not need a margin account just an option account. Buying option contracts provide all the leverage you will need without having to borrow money from your broker through margin. (However selling options short does require margin).
  9. You can get 100% or more return on capital at risk  in one day while trading weekly options. That is an amazing asymmetric one day trade, what stock can do this?
  10. I can use weekly options the exact same way I trade the stock. I can trade for maximum Delta only with no need for fancy option strategies.
  11. You can trade weekly in-the-money-options that is only purely intrinsic value with almost no time or volatility value that you have to over come.
  12. Trading weekly options turns down the emotional volume of a trader by only having a small amount of money at risk instead of the larger amount it costs to buy hundreds of shares of stock for a trade.