These trading strategies are provided for educational purposes only and do not constitute financial product advice.
Buying weekly options: Weeklies offer the ability to take 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 capitalise on your theory, you would be risking three weeks of premium in the event that you are 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.
Be aware that with only a limited time until expiry, the time value of a weekly option decreases faster than a longer term monthly option.
Selling weekly options for income: A 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 may sound attractive. Options theory may suggest you should generate up to 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, which 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.