Traditionally – before the weeklies – many traders who owned stock would sell a call against that stock. They would sell a monthly option – an option that expired one month out. And in doing so, they would need to wait the entire thirty days – or one month – to realize the full potential of that call that they sold.
Weekly Options – Time Decay
Time decay accelerates the closer the option gets to expiration day – so in order to realize the quickest return on investment – overall it is to the option sellers advantage to sell the option the closer it is to expiration.
Until the weeklys were born, traders were only able to sell options against their stock – or within their various monthly income option strategies – on a monthly basis.
Now, with weeklys – we are able to sell options 4 times within the same time frame we could previously only sell one – and in doing so we are able to potentially ‘amplify’ and ‘speed up’ our returns – and as is said – ‘reap the benefits of time decay in a much shorter time fashion’.
Weekly Options = Flexibility
And with the weeklys you have so much more flexibility. You can trade weekly options in a wide variety of different ways. For example, you can trade weeklys against stock – you can trade them against weeklies (for example calendar spreads, credit spreads, iron condors, etc.). You can trade them against other time frame options, for example the next week out weekly options – or the one month out – quarterlies – several month out LEAPS – and on and on.
And in terms of risk management the weekly options provide much more investment flexibility than there was before.
As an example – take the traditional collar strategy. This is a trade where the investor owns stock and typically purchases some longer dated puts against it. Before weekly options, traders could sell monthly call options against the stock to help finance the purchase of the protective puts. However, now with weekly options, we can instead sell weekly call options against the stock and potentially bring in more profit to assist in financing the puts then was possible with the traditional monthlies.
Bottom line is that options traders now have the ability to much more flexible and user much more leverage thanks to this new ‘swiss army’ knife type of tool they can now use in their trading called weekly options.