Although most of the examples I’ve used so far are monthly options, we need to mention weeklies.
All optionable stocks have a minimum of four expiration months. The current month, the next month, and two others that are determined by that stock’s particular calendar cycle.1 Stocks that have LEAPs will include the next 2 Januarys’ expirations (up to 2 years in the future).
Some stocks also have weekly expirations. These are typically larger cap or heavily traded stocks. SPY is so popular that it actually has Monday, Wednesday and Friday expirations available.
MAXIMUM Premium per Day
Having covered the time value inequality, we know that longer dated calls pay less premium per day than shorter dated calls. By extension, ultra short dated calls will pay the most! So if you are looking to maximize premium per day, weeklies are where it’s at!
MAXIMUM Theta Decay
We also know that theta decay is exponential near the end of an options contract— and these bad boys expire in a week (or less for the intraweek SPY strikes)! So if you’re looking to maximize theta decay, look no further— the exponential decay is in full swing if you are trading short term options.
MAXIMUM Gamma Risk
Unfortunately, if you’re looking to maximize gamma risk, also look no further! The price of these ultra short term options is highly susceptible to underlying moves in SPY.
Trading dailies or weeklies is really a preference of the call seller, which we will get into more deeply later. Until then, if you like more active trading, position management and quick expiration of calls, weeklies are probably for you. If you don’t want to manage positions much and prefer something a bit farther OTM you can sit back and watch, waiting for the perfect time to BTC, or you are happier with fewer/larger premiums, then monthlies are where you will probably land. I’d recommend you try them both!
As far as actually trading goes, there’s nothing specifically special about weeklies. All the same concepts apply, just in the extremes of some qualities. So as you forge on, remember the weeklies are always there to be traded.
- These cycles are referred to with the first initial of the relevant months, such as JAJO, FMAN, and MJSD. For example, JAJO is January, April, July, October. [↩]