While there are a number of different traditional option strategies we option traders can play using the weekly options, in this post we will take a look at the covered call – as well as a trade we will call the ‘buy write’ trade – where we use longer term options as a sort of ‘stock surrogate’ and then sell options out against it.
This is a trade that be used with both traditional 30 length options – or the newer weekly options as long as the underlying being used has weekly options available to trade.
It is possible to bring in more premium when selling weekly options against stock instead of the traditional (and longer term) monthly – or 30 days options. With the weeklys you are able to sell options 4 times a month rather than just once per month. It also allows you to remain active in the market (selling call options or put options if you are using this option strategy ‘in reverse’) – during time periods when you might normally not want to be active in the market.
For example, sometimes we might prefer to not be in a trade over an earnings announcement or a news announcement – or perhaps even a fed day announcement. Before the weeklys were born, we would either have to wait out the entire month (or extended surrounding time period) and give up collecting premium during that time – or go ahead and ‘risk it’ by putting the trade on in hopes of either milking enough option premium from the trade before the announcement took place – or cross your fingers and play it right through the announcement and ‘hope’ that your position turned out okay.
However, now – with the weeklys – we are able to continue playing in the weeks and perhaps even days before these types of market events. We just place our positions in the week that doesn’t include the earnings date – or the news or fed date. Then in the week where the event takes place, we simply step out of the market – wait for it to pass – then once it does pass – step back in again – avoiding any huge movements or ‘unknowns’ that might come about as a result of the event.
This is just one of the ways that weekly options trading provides us with greater flexibility and ‘an edge’ in option trading.
Next time we will get into more of the specifics of using the weeklys for covered call writing – or the ‘buy write’ strategy – as well as playing both of these strategies in ‘reverse’.
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