Brand New Options for the RUT
For those of you who might be trading options on the RUT (the Russell 2000) Index, over the last week or so there has been a big change with the weekly option chain.
Up until just recently the RUT had new weekly options issued every Thursday morning except for the third Friday of the month when the regular normal monthly options would act as the weeklys for that particular week.
If you wanted to place one of these shorter term trades you would need to wait until every Thursday morning – or you would need to wait until the regular monthly variation came along to trade that.
Using the monthlies in this way was the only way to trade an option with a time frame of say 3 weeks – or 2 weeks. There was only one opportunity each month to make that kind of trade – or utilize an option with this ‘in between’ type of time duration – in a particular strategy like an iron condor, credit spread, calendar spread, etc.
But now, there are multiple shorter term options available – currently going out about 4 weeks or so.
Instead of just the current weekly option and the normal monthly option, we now have one with 2 weeks left of life to trade – as well as one with 3 weeks until expiration – and another with 4!
It seems as though the good people at the CBOE are keeping busy adding new and unique trading products for us all the time.
This is a feature that I did notice recently with the SPX as well as some of the other heavily traded index and stock underlings such as AAPL. But it was just over the last week or so that I noticed it in the RUT (my favorite index to trade).
Ultimately what this means for us option traders is more flexibility. Now, with this new addition, instead of being stuck with using the regular monthly or longer term LEAPS to build out our weekly options trading positions with – we now have various selections to choose from – allowing us to super fine tune a position to give it the best opportunity to perform and accomplish exactly what it is we want it to.
For example – up until now if I wanted to trade a weekly diagonal spread where I sell a short term option and purchase a longer dated against it for protection – I would have to settle for whatever was available – which was the weekly and the regular monthly or longer term option with more than a month left until expiration.
Now I can sell that weekly, but when I go to choose my long option to purchase against it, I have the 2 week option to choose from as well as the 3 week and/or the 4 week. Each of these will have different purchase costs as well as different Greek values and will each build a slightly different version of the diagonal spread – allowing me to ultimately tweak and select the one that will most closely give me the trade I am looking to make.
This is a great addition to our weekly option trading tool box and I can’t wait to see what they come out with next. In fact, if there is a suggestion box I would like to suggest a version of the RUT similar to the SPXPM – where the options remain European but don’t expire until Friday at end of day.