Weeklies vs. Monthlies

I've been happily trading credit spreads on index options for over four months. When possible, I create an Iron Condor to increase the return without increasing margin, but at a small increase in risk.

I've begun trading weeklies in preproduction (small money as opposed to production for serious money) to get the feel for the dynamics. So far, I don't see a lot of difference in the weeklies from the last week of the monthlies. I've been trading options on the NDX and SPX for weeklies and monthlies.

Am I missing something?

HowardCohodas said:

I've been happily trading credit spreads on index options for over four months. When possible, I create an Iron Condor to increase the return without increasing margin, but at a small increase in risk.

I've begun trading weeklies in preproduction (small money as opposed to production for serious money) to get the feel for the dynamics. So far, I don't see a lot of difference in the weeklies from the last week of the monthlies. I've been trading options on the NDX and SPX for weeklies and monthlies.

Am I missing something?

Click to expand...

Hi Howard - In his book "Trading Realities", Jeff Augen calls weekly options "an unprecedented opportunity" because it gives you 52 chances per year to sell premium. Yes, the premium isn't that high because there is only a week until expiration, but nevertheless on more expensive stocks the premium can be quite high. I think that for stocks in an uptrend, using the weeklies can be a great way to do covered calls.

Paul

Pavlik said:

Hi Howard - In his book "Trading Realities", Jeff Augen calls weekly options "an unprecedented opportunity" because it gives you 52 chances per year to sell premium. Yes, the premium isn't that high because there is only a week until expiration, but nevertheless on more expensive stocks the premium can be quite high. I think that for stocks in an uptrend, using the weeklies can be a great way to do covered calls.

Paul

Click to expand...

I've had really good results from weeklies on indexes. Even though I have them in pre-production (small money at risk) mode, they boosted my overall performance this month by several percentage points. It seems that even small money coming around every week as opposed to every 60 days can make a noticeable difference. And even though they are weeklies, I'm almost always able to form an Iron Condor.

I keep looking over my shoulder wondering about what I have missed. I've kept weeklies in pre-production longer than any other testing I've done.

Hi guys,

Those weeklies do look very compelling and I can see why they are getting so popular. The only thing that scares me is if we get a spike in volatility. So maybe I would consider an extra long puts and calls, you can always sell them when you feel the trade is safer.

dave

Weeklies could be very useful as part of a covered call strategy, where you do a buy/write, selling another call every week. Your return depends on how high IV is for the option in question. I just looked up the prices for weeklies on Ford and VXX, for example. On Ford, the 16 calls sell for just under 1 percent of the stock price. IV is at about 28%. On VXX, however, the 38 calls sell for nearly 2% of the stock price, because IV is much higher at 41%, but also because the price of VXX is closer to the strike price than F.

One of my goals for 2011 is to try a covered call strategy using weeklies on F, XLF or some other stock - lather, rinse and repeat every week and see what kind of return I can get. But 1% per week would be a very good return if I could replicated it for most of the year.

Paul

HC,

Weeklies offer a reasonable way to place Butterflies. Using the $10/strike weeklies, GOOG, PCLN [avoid earnings weeks] provides a good risk/return ratio.

jog on
duc

ducati998 said:

HC,

Weeklies offer a reasonable way to place Butterflies. Using the $10/strike weeklies, GOOG, PCLN [avoid earnings weeks] provides a good risk/return ratio.

jog on
duc

Click to expand...

I recently began studying butterflies. Especially the degenerate form of an Iron Condor. Not even ready to paper trade yet.

I'm still reluctant to venture into options on anything but indexes. It's not just earnings announcements that provide market gap risk.

HC,

Butterflies are a fixed risk proposition, viz. the amount of the debit. Now of course you can try and time your Butterfly, ie. based on a chart [or any other] that you purchase the Butterfly as to where you think it might expire. This gives you a very low debit, but, also a lower statistical probability of being right.

ATM Butterflies, tend, to be more expensive, but, higher probability, based on statistical calculations, which in the market, are a pretty inconclusive calculation.

I'll try and find a quick example of a trade for next week.

jog on
duc

HC,

Take PCLN, they don't report this week, as an example of an ATM position.

Buy 1 @ $420 @ $19.20
Sell 2 @ $430 @ $10.30
Buy 1 @ $440 @ $4.60

Debit = $3.20 = Total Risk
Max Reward = $6.80 @ $429.99
B/E Up = $436.80
B/E Down = $423.20

You know your parameters before placing any trade. With only 5 trading days, and expiry on the 5'th day, barring news that creates a move, the range should be wide enough to contain the price.

This is possibly not the best example, as by my analysis, the neutral point of the trade is actually $435, so I wouldn't take, nor recommend this trade, but as an illustration, it serves it's purpose.

jog on
duc

This trade could be closed today, at current prices [$432'ish] for a clear $2 profit. That's a $2 profit on a two day holding position.

jog on
duc

is there anybody who trade weekly options permanent?
What are the best opportunities on a market to play with weeklys options when profit/loss is about 300+/100% ?
thanks

zsawevv212 said:

is there anybody who trade weekly options permanent?
What are the best opportunities on a market to play with weeklys options when profit/loss is about 300+/100% ?
thanks

Click to expand...

That illustrated trade returned 62.5% in two days on invested capital. So it's close to your target % return. These trades are available every week. I'll post another example next week.

jog on
duc

I've been testing the weeklies with TOSs' OnDemand feature with very good results, specifically trading SPY and credit spreads, using a trend study PPS as a guide to place my trades directionally. The OnDemand feature is an amazing tool.

Not all trades are winners but when the trade has gone against me, I just close the trade I'm in and double the # of contracts and go the other way.

There's not a lot of time to adjust with these trades and one could lose quickly but the returns are great.

Any other ideas for making these trades work? Studies used? Adjustment ideas?

Dave