Weekly Expiration

by Joe
(Walnut Creek)

Why are there two expiration Fridays in this month? GE in August 2011 for example.

Comment on options “Weekly Expiration" date.

TSO Reply: Hi Joe. I believe the 2 expiration dates in August 2011 that you are referring to fall on 12 August 2011 and 19 August 2011. The options that expire on 12 August 2011 (second Friday of the month) is class as Weekly Options Series” or ”Weeklys”. The options that expire on 19 August 2011 (third week of the month) are the standard options that expire once a month.

Currently not all stocks or indexes have weekly expired options. You may go to “Available Weeklys” to check on the updated listing of weeklys listed in Chicago Board Options Exchange (CBOE)

A weekly expired option has the same contract specification as a “standard” options contract except for the shorter expiration dates. They expire in a shorter time frame – about one week. Weeklys are usually listed on the exchange on Thursday or Friday and expire in the following Friday.

When all factors being constant, the premium for weeklys is usually “cheaper” than the “standard” options with the same strike price. This is due to the fact that weekly options has lesser time remaining until expiration and this resulted to a lower “Time Value” in the option premium.

The combination of “Cheaper Premium” and “Shorter Expiration Date” may spell trouble or opportunity to individual traders depending on how you look at it.

Some option writer may make full use of the shorter expiration time to deploy various Sideway Strategies such as Short Straddle to make profit from a stable market.

On the other hand, more aggressive traders may deploy the "Volatility Strategies” such as Long Straddle before any news event like an earnings report, to make profit from the short term volatile market.

You should pick the strike price and time frame of your options according to your risk/reward tolerance and forecast outlook of the underlying stock. Selecting the option trading strategies with appropriate risk-reward parameters is important to your long term success in trading option.

Have many profitable trades ahead!