Option traders are a special breed. These short-term trading strategists utilize all types of sophisticated tactics. Terms like iron condors, wing spreads, fences, butterflies, gamma scalping, volatility skew, and time value create an aura of exclusive intellectual superiority to the option trading tribe. While some aspects of options can be difficult to understand, many traders can grasp the basics and put these powerful trading tools to work. Simply stated, options are short-term trading vehicles that are designed for directional- or hedged-type bets on various underlying financial instruments.
Just like everything else in the financial world, options have become faster. Originally based on monthly expiration dates, financial engineers have created options with weekly expiration dates. It’s hard to believe, but the entire lifespan of a weekly option is just that – one week. Obviously, these new tools are not for every trader. However, the short time frames can be a great fit for some traders.
First launched in 2005, weekly options have been growing in popularity. Each series of weekly options are listed on a Thursday or Friday and expire on the following Friday. Known as Weeklys(SM), these short-term options have the same contract specifications as their monthly brethren. However, they are offered on a much smaller universe of underlying financial instruments than traditional options. Generally, Weeklys are only available on indexes and high dollar, volatile stocks like Google and Apple. For those of you familiar with option trading, weekly options are similar in some respects to monthly options in the final week of expiration. This time period is when options usually experience the highest volatility due to rapid time decay. Volatility is often the lifeblood of active option traders; weeklies can provide some active traders another tool to utilize.
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