Sharekhan Blog

What is Weekly Options?

  • Feb 26, 2024

It is imperative that you, as an investor, also become knowledgeable about weekly options, which are comparable to standard options. So, let’s discuss all about weekly options in detail.

Weekly Options Trading Meaning

Weekly options are a type of option that has a short expiration time period compared to traditional monthly options. They expire every week, hence the name "weekly" options. These types of options were first introduced in 2005 and have gained popularity due to their flexibility and potential for quick profits.

How Does Weekly Options Trading Work?

Weekly options have 52 annual expiration dates. This means traders can earn from these more frequently than they do with monthly options. The fast-increasing time decay curve presents an opportunity for investors to profit when they apply tactics derived from long-dated options. Moreover, for premium sellers looking to leverage market dynamics to maximize returns, it's a profitable option.

What are the Benefits of Weekly Options?

1.    Cost-Efficiency

A Weekly options strategy offers a cost-effective alternative for traders compared to monthly options and outright stock purchases. However, this affordability stems from their shorter duration of validity, typically just a week. With less time for potential price movements, the price of weekly options is lower.

Additionally, the increased volatility associated with weekly options, though potentially indicating higher risk, contributes to their lower cost.

2.    Quick Profits and Loss Management

In weekly options trading, traders capitalize on the heightened volatility within the short timeframe. While the mechanics of weekly options resemble standard options, their brief lifespan requires careful consideration. The ability to swiftly enter and exit positions enables traders to promptly cut losses and seize profit opportunities.

3.    Informed Decision-Making

The availability of up-to-date news and market analysis plays a crucial role in weekly options trading. Given the short expiration period, traders can leverage current information to make informed decisions and monitor market movements effectively. This allows for a detailed assessment of trades within a limited timeframe.

Features of Weekly Options

1.    Quick Adjustments

Weekly options are more sensitive to changes in the price of the underlying asset than are long-term options. They become more volatile and responsive as a result. Furthermore, it demonstrates increased responsiveness to changes in price, which makes weekly options a favored alternative for traders looking to profit from market turbulence.

2.    Reduced Premiums

Reduced premiums are the outcome of a shorter time to expiration for both calls and put options. A lesser premium is associated with selecting a weekly option that expires on the first as well as the second Friday of each month.

Conversely, an option with a third Friday expiration date may be rather costly. Lower major premium collections result from selling options.

3.    Quicker Rate of Time Decay

When comparing weekly options to longer-term options, the daily time decay is greater. Because of this, the value decreases more quickly as the expiration date draws near. Traders should take this faster time decay into account while managing their positions and assessing the possible profitability of weekly options.

Disadvantages of Weekly Options

1.     Minimum Time for Trade Repair

Weekly future options have relatively narrow time frames, which makes acts of repairing trades difficult, and the rapid time decay doesn’t allow much time for error. This means when the underlying asset walks negatively, strike adjustment is very difficult for investors.

2.    Wide Spreads

Weekly options show deep liquidity and high volume in most cases. However, it is not applicable universally to each strike right within the series of the week. Some of the strikes may be widespread, however, for short-term techniques, this is not advantageous.

Things to Consider Before Trading Weekly Options

Weekly options have a lot of advantages, but before trading them, keep the following things in mind:

  • Elevated risk: Compared to regular monthly options, weekly options are riskier due to their short expiration duration. Having a strong grasp of the market and implementing appropriate risk management strategies are crucial.
  • Restricted time: Because weekly options expire on a weekly basis, traders have a constrained amount of time to decide what to trade. Not every trader will benefit from this, and it may put additional strain on them.
  • Increased premium expenses: When opposed to standard monthly options, weekly options typically have higher premium prices because of their shorter expiration term. Because of this, traders must make decisions quickly and strategically in order to maximize.

The Bottom Line

Weekly options provide flexibility and the chance to make quick profits because they have a shorter expiration term. But just like with any kind of trading, you should plan, conduct thorough research, and employ risk management strategies.





Team Sharekhan
by Team Sharekhan

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