Weekly Options good for retail speculators

Weekly and quarterly options are similar to standard option contracts in most respects, except for one major difference: their expiration date. Weekly options were initially launched by the Chicago Board Options Exchange (CBOE) in October 2005. Quarterly and monthly options are targeted primarily at the institutional market.

Weekly have been introduced to give a greater choice of option expiration to investors and enable them manage short-term exposure on the assets.

Quarterly options are aimed at money managers and institutional investors who typically rebalance their portfolios on the last day of a quarter. As quarterly options have large contract sizes, they are not suited for the typical retail investor.

Weekly index options are similar to the monthly index options except that they expire on the last business day of every week instead of the second last business day of the month .

The Bottom Line

Weekly and quarterly options provide a greater choice of option expiration to investors, enabling them to trade more efficiently. Weekly options, in particular, may be suitable for retail investors who are familiar with the risks of trading options. Short-dated options are becoming more important for short term volatility traders because they offer the possibility to implement trades that take advantage of the relationship between time decay and volatility on a weekly basis.

Weekly options have the following advantages:

• Lower outlay: Since they have lower time value than standard options, weekly options involve a lower outlay of cash for an option buyer.
• Flexibility to select specific expiration date: Unlike standard contracts, which have a very limited range of expiration dates, an investor has the flexibility to select a specific expiration date for an option strategy through weekly options.
• Available for wide range of equities and ETFs: Weekly options are available for more than 325 of the most widely-traded equities, ETFs and indices in the USA markets alone.

The drawbacks of weekly options include:

• Commissions are higher on a percentage basis: Since most brokers charge a flat fee to put on an option trade, commissions for weekly options may work out to be higher on a percentage basis than for standard options.
• Wider bid-ask spreads and lower liquidity: Weeklys may also have wider spreads and lower liquidity than standard options contracts.
• Smaller premiums for option writers: The flip side of the smaller premiums paid by option buyers for weekly options is that options writers receive smaller premiums as compared to standard options.
• Difficult to “repair” a losing trade: The limited time to expiration of weekly options makes it difficult to roll over or repair a losing trade.

With quarterly options, the primary benefit is that their expiration coincides with the quarter-end, enabling institutional investors to implement hedging and other option strategies more effectively. The main drawbacks are the fact that they are only available for a few major indices and ETFs, and the wider spreads due to limited liquidity. As well, their large notional size puts them out of reach of the average retail investor.