The Chicago Board Options Exchange introduced weekly option trading on individual stocks in 2010. The options have eight-day lifetimes, extending from Thursdays to the following Fridays, Weekly options give traders access to short-term speculation or hedging opportunities. The CBOE also trades weekly options based on exchange-traded funds. As of the date of publication, more than 140 stocks have weekly options.
History of Weekly Options
“Weeklys” date back to October 2005, when the CBOE created weekly options of four indexes. In June 2010, the CBOE added weekly options for exchange-traded funds and four individual equities. The following month, the CBOE extended the original seven-day expiration period to the now-standard eight-day period. The popularity of the weekly options spurred to CBOE to add more than 100 new option series, and the list is still growing.
Features of Stocks for Weekly Options
All the weekly stock options derive from highly liquid, frequently traded stocks that feature significant option trading volume. “Liquidity” refers to the ability to sell the stock without affecting its price. Only stocks with a large number of actively traded shares can be called liquid, and all stocks underlying all the CBOE weekly options meet this criterion. In addition, the option chains -- the list of available puts and calls -- of each stock must show trader activity. Only strikes within 30 percent of the stock price are eligible for weekly options, and the CBOE can remove a strike if it has no activity.
Quick, Inexpensive Action: Advantage, Option Buyer
When sudden financial events or company earnings surprise investors, weekly options give buyers a chance to inexpensively speculate or hedge. The weekly options have low premiums -- because they expire in only a week, their time premiums are very small. You can, for example, hedge a long position in a stock that announced poor earnings by purchasing inexpensive puts. At the end of the week, you can sell the puts for a profit or let them execute, removing the shares from your portfolio at the strike price.
Time Decay: Advantage, Option Seller
The price of an option stems from its intrinsic value and its time value. Intrinsic value occurs when an option is "in-the-money." For calls, this means the stock price is above the option strike price. The situation is reversed for puts. Time value arises from the hope that there is still time for an option to gain intrinsic value. Time value dwindles at an increasing rate as expiration approaches. Option sellers count on time decay to write options that will expire without worth. When this happens, the buyer loses his entire investment and the seller profits from the option’s premium.
- CBOE: Weeklys Options from CBOE: Introduction
- CBOE: Available Weeklys
- CBOE: Short Term Option Series Program - Contract Specifications
- Seeking Alpha: Profiting With Weekly Options: Time Is On Your Side
- U.S. Securities and Exchange Commission. "Investor Bulletin: An Introduction to Options." Accessed Sept. 25, 2020.
- Cboe. "Options Quick Facts - Terminology." Accessed Sept. 24, 2020.
- Cboe. "Options Quick Facts - LEAPS." Accessed Sept. 25, 2020.
- The Options Clearing Corporation. "Expiration Calendar." Accessed Sept. 24, 2020.
- U.S. Securities and Exchange Commission. "Settling Securities Transactions, T+2." Accessed Sept. 24, 2020.
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