Powerful Weekly Options – Part II

In the last two editions of the Options Scan I gave you few reasons why using weekly stock options in your trading can be very beneficial. Let’s continue with some more reasons and then look at an example on why the weekly options provide a greater profit potential than monthly options.

 

One of the biggest advantages of weekly options trades is that they are repeatable: you can repeat them four times a month! When putting in such income trades, for example (when time decay works in your favor), coupled with solid risk and trade management, you can literally create a consistent weekly revenue stream.

 

Another aspect than not many traders realize is that trading weekly trades can make you a better trader. I am not saying that this is the case for the greedy day trader who comes across the weekly options trading and sees it as a new “sure-thing” of trading. I am rather referring to the astute options trader who properly learns how options work first, and then progresses at a much higher pace up on his/her learning curve; weekly options trading challenge him or her to find, analyze, filter and take decisions more frequently than with normal options.

 

Let’s look at the AAPL options chain below, where at the time of writing, I selected the slight OTM 530 Call options chain for a variety of coming expirations. I then assigned a daily potential profit value for each option, based on their total value (the premium) and the number of days left to expiration.

You can notice that while the nearest expiration Call option (March 21st) offers a potential profit of $2.89 over the four left days until it expires, the option expiring on Apr 18th (32 days left) offers a potential profit of $10.90. You may wish to check the potential profit per time unit though, and you can find just that in the last column of the above table.

 

In other words, if we were to sell these two different expiration – same strike Calls, and they expired worthless, the time decay would allow us to take advantage of a 72 cents per day on the March 21st Call option, while “offering” us only 34 cents per day (less than half) from the Call option expiring one month later.

 

The rate of time decay is exponentially faster as the option approaches expiration. Weekly options allow you to take advantage of the increased rate of time decay repeatedly on a weekly basis, as opposed to once monthly in the case of normal options.

Before weekly options, you could only use normal options, and there were only 12 opportunities a year, compared to roughly 40 – 50 potential ones nowadays. This means that with greater profit potential comes in a greater efficiency in utilizing and growing your trading capital. The strategies we choose also help us lower the risk exposure and increase our probabilities of success.

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