Weekly options for the masses–SPY, QQQQ, IWM, DIA and others


Thursday, February 7th, 2013 | Vance Harwood

Anyone that trades options knows that the pace quickens the last few days before expiration.   The delta (the change in option price relative to the underlying)  for the ATM option is still around .5, but instead of gradual changes for the deltas on the strikes in / out of the money, the curve starts resembling a step function, going from zero for out-of-the-money, to one for in-the-money at expiration.   The time decay of the option premium (theta) also accelerates, with perhaps 50% of the decay in the last month happening in the last week of the option’s life.

Taken from http://www.option911.com/blog/option-education/how-option-time-premium-decays-over-the-weekend/, click to enlarge

All of this is of course modulated by any changes in the volatility of the underlying, and the market in general.

Some traders avoid options close to expiration because of these factors–and others flock to them.    As a covered call writer I am really attracted to the accelerated time decay of short term options.   I’m not taking any more risk than normal holding the underlying, and I am getting an accelerated decay in the price of the options I am short on.    I will often wait until there is only two or three weeks are remaining on the options to create the position.

Now it can be expiration week, every week for the following Stocks / ETFs (taken from this CBOE posting):

Most if not all brokers support trading on weekly options, you may have to select options on the options chains to see them.  Beware of the listed greeks on these options, the software may not be using the correct time until expiration.

 

 

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Thursday, February 7th, 2013 | Vance Harwood
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  • http://www.investorsguide.org Investors Guide

    The graph showing the time decay is for At The Money options. For out of the money options the decay is more linear.

  • http://www.weeklyoptionsblog.com Brian

    I have been Trading Weekly Options and they are great for credit trading. Generally the fastest time decay is weekend and thursday evening before expiration for weeklies. Studies show about 2x in covered call premium with weeklies vs. monthly writing