Weekly Options Take Charge

Thursday, October 24th, 2013 | Vance Harwood

The volume of CBOE’s Weeklyssm options has grown rapidly since they expanded their listings into equities and Exchange Traded Products in June 2010.  Now weekly options comprise almost 20% of the CBOE’s average daily option volume.  The list of available weekly options is available on the CBOE website.



Among other things option traders take advantage of the Weeklys to position themselves for earnings releases,  harvest rapid premium decay near expiration, and place low cost directional plays.

Three recent press releases suggest that the Options Clearing Corporation (OCC) and the CBOE are moving to the next phase—making up to 5 weeks of options available on popular securities and moving existing options to look more like the Weeklys.  The specific moves are:

  1. Five weeks of Weekly options for many securities (press release)
    •  Until recently Weekly options were only made available 9 days before their expiration.  If you needed a later expiration date your only choices were monthly options with their 3rd Saturday of the month expiration, or in some cases quarterlies.    In October the CBOE started making SPX options available with weekly expirations 5 weeks in advance.   Evidently encouraged, they starting rolling out additional weekly expirations for additional  indexes and stocks (e.g., SPY & AAPL).    Overall I think the advantages of a more regular set of dates will outweigh the  problems with spreading option volume across more option classes.
  2. Friday afternoon expiration for most monthly options
    • The OCC announced a plan to change the expiration date for monthly options—to align with the Weeklys.  Instead of expiring on Saturday, they would expire at the end of trading Friday.   The Saturday expiration always seemed awkward to me, causing confusion on theta calculations and exposing investors to weekend news events.  I suspect it’s a throwback to days when paper actually had to be shuffled to close things out.  This change, planned for February 2015, would render the 3rd Friday of the month options indestinguishable from Weeklys.
  3. Rationalizing ticker symbols with SPX options (press release)
    • Now there are four different tickers for SPX options,  a confusing mix of AM monthly/PM weekly, monthly, and quarterly options.  Unlike other options there are weekly options (PM settled) on the same week that the monthly (AM settled) expire.
    • Pending regulatory approval the CBOE plans to reduce this mess to two tickers in Q1 2013:  SPX  (the traditional, open outcry 3rd Friday of the month options) and SPXPM for everything else.

In general the move to weekly options has been gradual and non-invasive.  However the VIX Index is based on SPX monthly options and a loss of volume / liquidity in that particular option class would be  not be good.   I hope the CBOE will eventually modify the VIX calculation to take advantage of the finer granularity of the SPXPM weekly options—avoiding some of the nasty glitches the current index experiences when it switches to different contract months.

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Thursday, October 24th, 2013 | Vance Harwood

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