Weekly Options

Watchlist Criteria for a Double Calendar

1. Sideways trend 2. Lower volatility relative to other equities 3. Avoid stocks close to earnings announcements as IV can spike 4. Look for broadly diversified ETFs such as an index ETF 5. Actively traded with 1 mill shares per day traded 6. Difference between bid/ask around 5-10%

Double Calendar that is OTM

1. You can let the short options expire worthless or roll to the next week, when they achieve 80% of their max gain.

Time window for short options in a DC

10-20 day window

Time window for long options in a DC

30-50 days out

How far out are weekly options listed

5 weeks out

Benefits of a weekly option

Additional expiration opportunities. The increased number of expirations allows you to build precise positions and provides more opportunities for risk adjustment. Building and rolling positions may also be easier because of the larger number of options to choose from that allow you to target the timing of your strategies.

Vega

Because of proximity to expiration, changes in IV can be expected to have a larger impact on weekly options than they do on standard options.

Short trading window is a benefit

Because weeklies trade in a smaller time frame, they allow you to effectively pinpoint trades near and around market events like earnings announcements or the release of important economic data

Double Calendars Weekly Options Strategy

Buying and selling calls and puts at the same time with different expiration dates. This combo creates a vega positive trade that can work well with IV. Often times

Double Calendar Strike Selection

Consider choosing short options that have a delta between .25 and .4 for calls and -.25 and -.4 for puts

Portfolio Risk

DCs can be fairly forgiving when compared to other options strategies, like long and vertical spreads. The stock has to make a large move in a small time frame for you to reach max loss. Risk only 1-2% of your portfolio in each double calendar trade

What kind of spread is a Double Calendar

Debit Spread, meaning you need to pay to enter the trade, which consists of the premium paid and the contract fees

DC and Delta Gamma

Delta is neutral which is inherent in the setup, so you will want to look for a sideways trading underlying that avoids big moves in price.

Vegas for these trades

Double calendar is vega positive and profits from the rising IV Straddle strangle swap is vega negative and profits from the IV crush

Double Calendar as an INcome based Strategy

Due to the structure, it may be possible to roll short contracts from one week to the next while maintaining long contracts with longer expiration cycles. Rolling stocks incurs additional transaction costs.

SPX Weekly Options

Finish trading on fridays and settle at the net closing value of each component of the S&P 500

Gamma Risk

Gamma is important for traders because it paints a picture of the volatility in options trading. As expiration nears, gamma increases and prices become more volatile. Suppose an underlying stock made the same price move 1 week ago before expiration as it did 1 month ago. Because gamma s higher, the stocks move would cause options prices to fluctuate much more the week before expiration.

Time Decay

Grows the most the last week before expiration

Double Calendars and Implied Volatility

IV is good for DCs, as it goes up so does the value, max gain, and probability of success

Active Investment Strategies

If you want to include weekly options into your trading portfolio then you will want to lump it into your active investment strategies group

Theta

Increases in theta can offset gamma risk because these options attempt to profit off of time decay.

What types of products are weekly options traded on?

Index funds, ETFs, and individual stocks

Straddle-strangle swap

Involves selling a straddle and buying a longer dated strangle. The goal is to profit from IV swings near corporate events such as earnings announcements.

Double Calendar Max Loss, Gain, and Break Even

ML: Premium paid to enter the contract MG: When short options expire at either strike price BE: Varies depending on stock price, IV, and time decay

Trade Risk

Max loss is limited to the trades total debit, therfore determining how many spreads to enter, your trade risk should be equal to max loss including know and potential transaction costs.

Weekly Routine

Monitor existing watch lists for new opportunities

Daily Routines

Monitor your stocks for exit or rolling opportunities Check for any large or unexpected moves

Constructing a Double Palendar

OTM Put Calendar + OTM Call Calendar

Double Cal that is ITM

One of the short options ends up ITM. You can either close the trade or roll to the next month

Weekly Options Defined

Options contracts that expire on a weekly basis.

Long Double Calendars

Options spread strategies that involve buying and selling different options across multiple expirations. Can be both bullish or bearish

Risks of Weekly Options

Prices are more volatile days before the expiration, which can be difficult to stomach. Small movements in the underlying can result in losses.

Quarterly Routines

Reflect on trading performance. Compare toa double calendar benchmark such as the SP500

Expiration Cycles

Set of expirations within the options chains. Weekly's list on thursdays and expire at market close on friday of the following week.

Standard Index Expirations

Standard index options finish trading on Thursdays and settle at friday's opening value

How weekly options differ from Standard Options

The shorter expiration cycle of a week is shorter than the standard cycle of a monthly basis.

Earnings Announcements

These tend to be volatile for stocks, and the unpredictability discourages many traders from actively trading companies with upcoming earnings announcements.

Fast time decay as a benefit

Theta decay is faster as an option approaches expiration which is a benefit for the seller, not the buyer.

What is similar between a weekly option and a standard option

They have the same features, pricing, assignments, rights, and obligations

How traders attempt to avoid gamma risk

They will trade or roll their options 2-10 days prior to expiration because gamma risk grows as expiration nears.

Early Assignment Risk

This increases for ITM options closer to expiration.

Double Calendar and Theta

Time decay is working in the favor of DC so it is Theta Positive

Entry Rules for a Double Calendar

Timing isn't as important as contract selection, because a DC has 4 contracts 1. The 2 short options must have closer expiration than the 2 long positions

Simply defined purpose of a Double Calendar

To capitalize on time decay and rising IV

Active Management

Traders needs to pay more attention to these trades because they move quickly.

Double Calendar and Greeks

Vega positive, and profits from increasing IV Theta Positive