Another benefit of weekly options is the ability to use them as hedges – or as of the adjustment process for longer duration trades – for example monthly option income trades or even longer.
Before the weeklys, when an option income trader would put on an iron condor, credit spread, calendar spread or a double diagonal trade – when the time came to adjust the trader would be limited to using options from the same front month option expiration cycle that the trade itself was constructed from – or a longer dated option.
With the weekly options now available – a trader using the monthly options for a traditional monthly income type position can now use weekly options as potential adjustment or hedges. The weekly options give the trade many more ‘options’ in how to go about adjusting the trade.
Besides the normal type of adjustments – weekly options can also be used as a super cheap form of insurance for unpredictable events while an option trader is in a trade. For example – let’s say that Option Trader Joe is a monthly option butterfly spread trade and things are going well – but – the fed is going to release minutes towards end of day – and everyone who has been trading the markets over the past few years know that these types of announcements or ‘events’ – can temporarily cause the market to move around wildly.
Certainly wildly enough to put Joe’s butterfly spread position in trouble – if not totally destroy it.
Before the weeklys, if Trader Joe wanted to hedge his option income position over the announcement he only had monthly options or longer dated options available to do so – which could be quite expensive – and perhaps even unnecessary depending on how the market reacted.
But now. with the weekly options available – a short term weekly option can be used – very cheaply – and effectively – as all Joe is really looking for is a ‘band aid’ type hedge to get him over the announcement.
For more info on how to learn these types of option adjustments – as well as other little known option income strategies that can be used with both weekly and monthly options – be sure to join our free option income newsletter by clicking here now.