An interesting way to consider using weekly options is through a strategy called the stock replacement strategy.
Purchasing stock can be very expensive and can tie up a lot of capital in your trading account. However, using this little known options strategy (and potentially weekly options strategy) – there is a way to in a way ‘purchase’ or at least benefit as if you owned stock – without having to actually purchase the stock – or – tie up all that capital.
If there was a stock I like and I wanted to own it – it would either cost me to purchase the stock (that money would be tied up while I owned the stock) – or I could also purchase the stock using margin – where I am basically borrowing the money from my broker to purchase the stock and paying them in interest to do so.
Weekly Options – Replacing Stock
Instead, using this ‘stock replacement strategy’ using options (even weekly options is possible) I can avoid having to do either.
Here is how it works:
Instead of purchasing the stock – I simply purchase an at the money call – and then I sell an at the money put (at the same option strike price).
For example lets say that I want to purchase that old favorite stock called XYZ – which is trading at $90.
I would buy the 90 call. And then I would sell the 90 put.
Ideally – both of these options will have a perfect 50 delta – and added together they will equal a delta of 100 – making this position act just like being long the stock.
Weekly Options – Going Short
You could also do the same thing to play the downside. In this case you would purchase the 90 put and buy the 90 call. With a position delta of 100 you would be set up just as you would if you were short the stock.
And – depending on your time frame for what you expect (or hope) the stock to do – you could use either longer term LEAP options, regular 30 day out options – or if you are looking for an extremely short time frame you wish to be in the position – weekly options.