How To Trade Weekly Options?

Trading weekly options has turned into an increasingly popular way of earning ever since its release in 2005. 

Long gone are the days of exclusively relying on traditional stock trading because now you can buy, sell and put your options in weekly expirations.

Weekly options are quite similar to standard options, the only difference lies in terms of their termination date which is every Friday, except the Friday on which monthly options expire.

While these can be highly volatile, finding the right strategy can reduce the risks and make trade incredibly profitable.

10 Best Ways Of Trading Weekly Options

To help you in choosing the best strategy for trading weekly options, we have gathered a list of the 10 best, tried and tested ways of trading.

Here is the list to ensure your losses are minimized and your profits maximized:

1. The Trend Following Strategy

The best way to start is to observe and that is why many long-term traders use the trend following strategy to trade weekly options.

This strategy is used by analyzing the trends on weekly charts and trades through this can last for several years. You can use a trading journal to help track stock trades and improve performance.

To use this, make sure you carefully follow the trend lines and trail the long -erm trends on the chart. Once you have identified these patterns, you can trade based on them to increase stability.

For example, a trade based on the 2009 global financial crisis will only be altered by the false alarm caused by the 2020 COVID-19 market. Identifying these trends and investing accordingly can help reduce any potential losses.

2. Weekly Highs and Lows Trading Strategy

Another strategy for trading weekly options is observing the weekly highs and lows, using them as an important support and increasing resistance levels on intraday time frames such as H1, H4, M15 and M30.

To break around these levels, traders can use breakout and reversal techniques, increasing the likelihood of profit.

Sharing trades can help with this strategy because it primarily depends on improving from experience.

3. The Range Trading Strategy 

Range trading is the most common strategy among position traders, and it includes trading a range bound market on a weekly chart.

To employ this strategy, you must first identify a range bound market on a weekly chart and follow by marking the support and resistance levels of the chosen range.

After that, you can wait and search for trade setups after the price reaches either the support or resistance levels you marked.

Your trade setup can be a price action pattern or an indicator signal, and you can use either to trade your weekly options. The strategy works best through consistent tracking and developing comparison reports from previous trades.

4. Swing Trading Weekly Price Movement Strategy 

If you are a swing trader, a weekly trading strategy for you could be trading the weekly price movements, similar to how the day traders trade their daily price movements.

You can employ this strategy to trade weekly bar highs and lows, which can be done within an H4 time frame. 

Using this strategy for trading weekly options can be a breakout for the important resistance and support levels or a reversal from there. 

5. Strategy for Entering A New Trade

This strategy for trading weekly options is based primarily on those who have not done so before or are considering entering a new trade.

The importance of waiting is crucial when entering a new trade. You must first observe the opening and closing prices of the trade before you prepare to invest. 

A higher opening price can suggest the stock market pulling back later on, so it is better to watch how the numbers turn out. 

However, if you are sure, you can enter the trade market with the assumption that the price will continue to perform and paying a higher premium will not impact future profit. 

6. Strategy For Exiting Winning Trades

Knowing when to pull back is an important aspect of trading weekly options. The rule of thumb is to wait until 100% profit before exiting the trade, but this can vary individually.

To exit successfully, the best strategy is to evaluate your risk profile and profit margin from your current position. If you believe you can anticipate a high profit, you can stay in the current trade.

However, if you have made minimal profit e.g. 20% and are satisfied or want to quit because of the market’s volatility, you can do so before the expiration date.

The key to this is to know when to cut your losses and when to hold out your position to ensure maximized profit.

7. Strategy for Handling Losing Trades

The market is unpredictable and that is why it is important to know how to handle the greatest downside of trading weekly options: losing trades.

Mostly, it is recommended to quit if the trade you have is down by 60% but considering the market’s volatility is important before you take this decision.

Many traders prefer to double down when losses occur, that is, they purchase more of the same trade which helps in breaking even or making profit when the market goes up even slightly. However, this can be risky too.

Doubling down can prove to be an effective quitting strategy if things are uncertain but leaving a trade if it has been on an all-time low can help prevent more loss.

8. The Thursday Expiry Strategy

Trading on Thursday weekly expiries can yield an annual return of 80-100%, doubling capital every year. This strategy has a profit rate of over 90% and is very limited in case of loss. 

To utilize this strategy, create a short strangle at 9:30 AM, with strike prices 200-300 points away from the spot price. 

To reduce the margin, buy deep OTM weekly options and then wait till 11:30 AM, when the target is typically 60 points, which results in around 4% returns. 

To ensure you are successful, always trade with a stop-loss and ensure you adjust for any sudden changes.

9. The Short Straddle Strategy 

The short straddle strategy has the highest profit potential if it is followed with patience and discipline. 

To maximize profits and minimize losses, it is recommended to deploy a short straddle strategy at least 30 minutes after market opening, as the market moves quickly in the first 30 minutes. 

Avoid deploying this strategy on days known for trending or highly volatile markets, such as expiry days or big financial events. Avoid calculating stop loss based on premium percentage, as option premiums can spike due to intraday moves, potentially causing losses. 

Keep the stop loss based on market levels and wider, with most days staying within 1% range 30 minutes after opening and 30 minutes before closing. 

Exit trades 30 minutes in advance of market closing time, as market moves in the last 30 minutes could affect the next day’s strategy. 

By keeping a 1% market stop loss on both sides, profits can be made on most days from the short straddle.

10. The Backtesting Strategy

To employ any of the above-mentioned strategies to trade weekly options, it is important to backtest them thoroughly.

To backtest your chosen strategy, use previous data to check out how your method would have performed under various market conditions. 

Not only does this prove useful in locking profit and foreseeing potential losses, it can also determine the visibility and effectiveness of the chosen strategy over time.

Doing so also helps you evaluate the benefits of different strategies in different scenarios and choose the best one for each.

Advantages and Disadvantages Of Weekly Options

While there are many different ways you can trade weekly options, you must also evaluate the different strengths and weaknesses that come with them.

To help you understand whether weekly options are the best for you, here is a list of their advantages and disadvantages:

Advantages 

There are many reasons why weekly options have become increasingly popular. Some of them include:

• Lower Upfront Costs

Weekly options offer the advantage of having lower Upfront premium costs that can potentially lead to far more significant returns if the market moves in a favorable direction. The reason for this is their lesser validation period which helps make them accessible to investors with smaller portfolios. This results in a low investment and high return combination that is preferred by many.

• Increased Flexibility

Weekly options have a lot of flexibility which is incredibly useful for investors who wish to trade more frequently. Weekly options also expire quickly which helps in quick returns in comparison to other traditional options.

• High Volatility

Weekly options are incredibly volatile but that is not necessarily a bad thing. If an investor can accurately predict market movements and put their money to use accordingly, trading weekly options have some of the highest profit margin in a short time frame.

• Higher Commission Costs

Trading weekly options can result in higher commission costs since there are more trading opportunities in short periods of time which results in more profit.

• Short-term Bets

Weekly options offer an advantage that you can’t accomplish with other options: the ability to make an immediate short-term bet based on an anticipated sudden price movement and short news item. This offers decreased chances of loss and lower risk compared to other traditional options.

Disadvantages 

However, despite having many advantages, there are a few notorious drawbacks that put off potential investors from opting for weekly trading options. There comprise of:

• Higher Risk

The greatest drawback of trading weekly options is the high risk they come with. Since they are much shorter than traditional options, it gets challenging to adjust the strike price which increases the risk of incurring losses.

• Faster Time Decay

Weekly options have a rapid time decay which puts off investors because it means you rarely have time to repair a trade that moves against you by adjusting the strikes. This reduces the feeling of security and increases the pressure when trading with weekly options.

• Less Liquidity

Weekly options have far less liquidity than others which makes it difficult to enter and exit trades. This reduces their desirability because it makes it harder to quit while you’re ahead.

• More Time Consuming

Trading weekly options can take up a significant amount of time because of the frequent position rotations, weekly chart analysis and constant monitoring it requires. This reduces its appeal to those who are looking to generate a more passive income when it comes to trading options.

• Lower Open Interest 

Another disadvantage of weekly options is their lower open interest rates and wider bid ask spreads which is not good for short-term strategies. This can result in a less favorable price execution compared to other traditional trading options, putting off potential investors.

List Of Weekly Options

After reviewing the strategies to trade weekly options and evaluating their advantages and disadvantages, if you still decide that they are for you then you must be looking for a list of weekly options you can trade.

Indexes with weeklies available include:

• Cboe Global Markets, Inc. (CBOE)

• Dow Jones Industrial Average (DJX)

• CBOE Volatility Index (VIX)

• S&P 500 Index  (SPX)

• CBOE Mini S&P Index Options (XSP)

• MSCI EAFE Index (MXEA)

• MSCI Emerging Markets Index (MXEF)

• Nanos S&P 500 Index Options (NANOS)

• S&P 100 Index (American style) (OEX)

• S&P 100 Index (European style) (XEO)

• Russell 2000 Index (RUT)

Other than indexes, popular exchange-traded funds (ETFs) which also have weeklys include:

• SPDR Gold Trust ETF (GLD)

• iShares MSCI Emerging Markets Index ETF(EEM)

• iShares Russell 2000 Index Fund (IWM)

• Invesco QQQ (QQQ)

• SPDR S&P 500 ETF (SPY)

• Financial Select Sector SPDR ETF (XLF)

FAQs

Should I trade weekly or monthly options? 

It depends on your individual trading style when it comes to choosing between the two, weekly options can give better moves for frequent traders while monthly options work well for positional traders.

What is the best time frame for trading weekly options?

The best time frame primarily depends on your trading strategy. For example, a high frequency trader, you should use a 30 second to 1 minute time frame whereas if you are a positional trader, a 30-to-15-minute time frame is a better option.

How can I improve my trading performance?

The use of a trading journal template can help improve your notes tracking and trading performance through analysis, comparison reports and risk analysis.

All the information made available here is generally provided to serve as an example only, without obligation and without specific recommendations for action. It does not constitute and cannot replace investment advice. We therefore recommend that you contact your personal financial advisor before making a purchase decision.