Weekly Options

Weekly options:

Starting from sometime last year, weekly options were made available.

So far they are the:

Weekly SPX, weekly OEX, weekly XSP, and weekly XEO.

Could be more in the future.

The weeklies present themselves with interesting opportunites.

For example, due to the little time value, you can get a much higher effective gearing, compared to the more ex monthly options. This can be good to take an advantage of a price movement.

Also, the time frame is much shorter, 1 week only.

This can be good because, any predictive activities, whether directional or greeks-related, deteriorate in its accuracy over longer time frame. Eg: our ability to forecast accurately falls over longer period. More chances of something wrong happening midway, and adjustments would be needed.

Conversely, with the weeklies, with the smaller time frame, you only need to lookup and forecast for 1 week at most, or could be only a few days if you trade midweek. However it also implies there's less room for adjustments.

Other characteristics:

Weekly comes in interesting strikes. Which brings certain oppportunities. Weekly SPX have 15 points difference. This is a big spread. It is possible to exploit this spread difference and the short time frame.

For example for placing credit spreads.

Depending on where the underlying SPX is,

You can place your credit spread quite far away, and see them slip into oblivion as the week and the underlying move progress, or do a slightly ATM-OTM credit spread just when the SPX is nicely in one of the strikes, and combined with your directional analysis, see the SPX turn and make your spread slip away into OTM.

The unique strikes choices and short time frame however, can also create difficulties, as they can be limiting in your effort to tailor.

Fortunately there are also weekly minis.

It is possible that if 15 points spread are deemed unsuitable for your situation, to open a smaller 5 points spread, by using the mini version. You can open weekly SPX at 1325 and weekly XSP at 132, creating a weekly position of 5 points only.

However depending on the underlying this is again can be either a blessing or a limitation, because sometimes the strikes you want might not exist. For instance weekly SPX 1310 strike, followed by 1325 strike, it means for XSP there is only 131 and 132, which means you cannot tailor-made a spread of 1310-1315, only possibly 132-1325. This can pose a challenge.

With SPX and OEX having high correlation, it is possible to further fine tune or partial hedge further.

So....hmmm...so far, unique characteristics....short time frame, short look-up period, little room for adjustments, unique spreads, higher effective gearing, and more frequent/ recurrent, because every week there will be weeklies.

Any comments? Let's discuss....how is your experience and what have you learnt from trading weeklies.
 
I have traded weeklies several times, the weekly SPX. I have traded credit spread, and single long legs.

My experience is.......

You have to be really really sure of the direction and the timing (I did directional trades) and have to enter at the right time quickly, and exit at the right time quickly. Because for directional trades, they are highly leveraged and very little room for flexibility for repairs.

I recommend it if you are a seasoned futures trader (good with directions). This will give you higher leverage than futures.

Im not sure what other opportunites exist, especially with non directional greeks trade.

Perhaps you guys have ideas?
 
Well, you've summed it all up nicely - not much to add!

Weeklies are virtually pure gamma.

As such, good for cheap short term directional bets or hedging. IMO, better for playing from a gamma (long) perspective rather than a theta (short) perspective. Although the theta is appealing, spot volatility in the weekly timeframe (even on SPX) has not been conducive for this purpose if taking a market neutral stance.

XEO weeklies have been introduced more recently and allow the trader to avoid any early assignment issues that were there on the OEX weeklies.

Drawbacks:
  • Strike selection limited for obvious reasons.
  • Strike selection can easily get out of sync with underlying due to relatively large moves on the Friday for example.
  • Unable to roll short mini-SPX (XSP), SPX options due to AM settlement characteristic shared with big cousin. Not a problem with OEX/XEO.

Your broker should recognise cross-margining for weekly/monthly permutations e.g. short weekly XEO, long monthly XEO = calendar/diagonal etc.

Not sure there are any particular strategies you had in mind to apply to the weeklies in an ongoing basis as it depends on the circumstances each week.

On the plus side, it's expiration week every week!

MoMoney.
 
i have traded condors with weeklies. but it depends on the week. any data coming out like the first week of a month
 
I backtested some neutral ideas on weeklies even before they started trading. The results were very good , but when I saw the real ATM b/a spread ... all "profit" was gone.
 
Yeah, I've had some success with some 10-wide OEX iron flies and straddle/strangle swaps (time flies) but you have to pick your weeks. More success from a long cheap gamma directional basis.

You're right b/a spreads on these products are very bad...

Quote from IV_Trader:

I backtested some neutral ideas on weeklies even before they started trading. The results were very good , but when I saw the real ATM b/a spread ... all "profit" was gone.
More...
 
I think, in terms of its unique characteristics......

Weeklies are the best options choice for intraday options trading.

It is potential to serve as a proxy futures-like intraday trading, with higher leverage to boot.

With the more ex monthly options, any intraday move will be blunted and absorbed by the still large time value. And might not overcome the bid-ask spread. Even if you do overcome them, the bid-ask spread which eat your returns, and the smaller gearing, will make the comparison with futures would show that futures is more suitable for intraday trading than monthly options. More returns for each point of underlying move.

However with weeklies,

As long as you choose the right strike as opportunities arise, you can see higher leverage than futures, even for intraday trading purpose. The bid-ask spread can be overcome as long as you catch at least several points of the underlying move.

This would work with SPX best.

On thursdays even better.

Doesnt work so well with the OEX or XSP/ XEO. They tend to need to work harder, more intraday move.

If someone is really good with direction, should really try their hands on this.
 
there's better stuff for intraday vols junkies...hourly exp'n'5min exp, yes 5min [vols just beyond belief]
prob is u have to trade 'em trough specialized cfds brokers or trough a binary exchange, but they out there'n'much fun to trade.
 
problem with the weekly's is that i'm 70% of the volume on them; and the mm moves away the second i put an order in. is a useful tool though, as it gives you cheap leverage and hedging capacity.
 
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