Weekly Options vs Monthly Options

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Weekly options are entirely different than monthly options, and it behooves all options traders to know the key differences between the two types of options to avoid potential errors when placing trades.

Key Points:

  • Weekly options (aka “weeklys”) are options that expire on any Friday that’s NOT the third Friday of the month
  • Monthly options ALWAYS expire on the third Friday of the month
  • Weekly options exist for most stocks, major indices, and ETFs
  • If a security is optionable, it will always have monthly options (which are standard) but not necessarily weekly options
  • Weekly options always have the same settlement times as normal monthly options (almost all are PM settled)

Understanding Weekly Options

Weekly options were first introduced by the Chicago Board Options exchange (now branded as Cboe Global Markets) in 2005 with much excitement and anticipation. According to the Cobe website, “weeklys offer an innovative way for customers to efficiently take advantage of news driven market moves and short-term trading strategies.”

Prior to the arrival of weekly options, traders and investors only had 12 options expirations per trading year. Options expirations are a big deal for traders because, unlike stocks, options either expire in the money (ITM) or out of the money (OTM) at expiration. If options are ITM at expiration, they will have intrinsic value. If options are OTM at expiration, they will be entirely worthless. This black and white scenario is part of the appeal of options, and it is why there are so many options strategies to choose from.

Option sellers are hoping that the options they sell will either decrease in value prior to expiration or expire worthless (or both). Option buyers are hoping that the options they buy will either increase in value prior to expiration or expire with intrinsic value (or both).

Weekly options provide more flexibility and timeframes to choose from when deploying an options trading strategy.

Weekly options function virtually exactly the same as regular monthly options, except that they are created every Thursday up to 39 days in advance. Until recently, weekly options only used to be created with 9 days until expiration, but the Cboe evidently decided that wasn’t enough and opted to create them with more than a month until expiration to provide traders with more options (no pun intended).

Understanding Monthly Options

Monthly options were first introduced only in the form of put options in 1977 by the Cboe as a way to hedge long stock portfolios. Soon thereafter, call options were introduced and the world of options trading was born. Since then, options volume has exploded.

Although options originated as a form of hedging, a lot of traders now use options solely to speculate via buying or selling premium opportunistically.

Why are Options a Big Deal?

Basically, there are two different strategies traders use with options: buying and selling. In a nutshell, buying options involves risking a small amount of money to potentially make a lot, and selling options involves risking a large amount of money to hopefully make a little.

Traders like selling options, particularly out of the money options, because there is a higher probability that the option will expire worthless than that the option will expire in the money with some intrinsic value. However, in exchange for this higher probability of expiring worthless, selling options has a much greater potential for loss compared to reward.

It’s the age-old concept of sell high and buy low, except you don’t have to buy low if there’s nothing to buy when an option expires with a value of $0.00; this is part of the appeal of selling options.

As time passes and expiration nears, out of the money options contracts will theoretically decrease in value due to time decay. Without question, the Cboe realized that traders like to sell and buy options based solely on the amount of time remaining until expiration, so weekly options were created and there are now options expirations for most stocks every single Friday.

Popular Weekly Options

One of the most popular indices in the whole world, the S&P 500, has multiple weekly options available to trade.

In the case of SPX, there are actually three weekly option expirations. One on Monday, Wednesday, and Friday. Almost every other index and stock only has Friday weekly options; SPX is an exception because it is so popular and heavily traded.

Ticker symbol: SPX

  • SPXW Friday Weeklys – (End of Week -EOW)
  • SPXW Wednesday Weeklys
  • SPXW Monday Weeklys

Graph from Cboe showing SPXW volume

All weekly SPX option versions are PM settled (normal option settlement time) and are European-style exercise, meaning in the money options can only be exercised after expiration and not before. American-style options that are in the money can theoretically be exercised at any moment (like a month before expiration), although this is extremely rare.

Nevertheless, this possibility of early exercise and, therefore, early assignment, is a real risk for option traders who may not have the capital in their account to sustain an assignment. Weekly SPX traders need not worry about this, which is a nice bonus.

This is the full list of all securities in the US with weekly options (including stocks, ETFs, and indices). Virtually every popular stock, like AAPL, TSLA, NFLX, and SNAP have weekly options.

Weekly Options vs Monthly Options

Most online brokers clearly highlight which options are weekly and which options are monthly.

In this option chain with Ally Invest, weekly options are indicated with a “(W)”.

Weekly options with Ally Invest

 

Weekly Options

PROS 
  • Expiration every Friday with new weeklys created every Tuesday
  • If buying weekly options with a short market outlook, you are only paying for time premium that you need
  • Selling OTM options with only a few days until expiration minimizes the net time a portfolio is theoretically at risk to short option premium
CONS
  • Active trading of weeklys can result in lots of fees and commissions
  • With such a short amount of time until expiration, weeklys can change price rapidly and result in big losses if timing is wrong
  • Weeklys can sometimes be illiquid compared to monthlys on the same product

 

Monthly Options

PROS 
  • Available to trade months and years before expiration
  • Liquidity is almost always excellent if the underlying asset is liquid
  • Every monthly option will essentially become a weekly option every three weeks
CONS
  • Only expire once a month, 12 times a year = not a lot of opportunities
  • Not as much time flexibility when selecting expiration dates

 

 

Final Thoughts

Besides weekly and monthly options, the only other type of option is “quarterly.” As you could probably surmise by now, quarterly options are appropriately named, because there are only four expirations per year. Since quarterly options are not that frequent, they are really not that popular.

A weekly option will never expire on the same date as a quarterly option. There is never any overlap.

At the end of the day, weekly options and monthly options are really similar, and the only difference, besides a few settlement times for different products, is the amount of time until expiration.

A lot of option sellers refrain from selling options with more than 100 days until expiration, because theta decay seems to have less of an effect with more time until expiration. Conversely, as expiration nears, out of the money options will rapidly lose value due to theta decay (because the option will either expire worthless or with intrinsic value), so this is precisely when a lot of option sellers choose to attack.

One thing to keep in mind is there is no “right” amount of time until expiration when choosing which options to trade. If you’re buying/selling options for a future binary event, like an FDA announcement or earnings report, make sure the event is set to take place during the lift of the option you’re going to trade. Other than that, selecting between weekly vs monthly options is entirely dependent on your market outlook and time horizon. Some traders want to express an opinion that the market will not go up/down beyond a certain price level, so they look to sell an option with a strike price that matches that level.

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