Stocks & Commodities V. 29:6 (39): Explore Your Options
I’ve noticed the more active large-cap stocks are offering options that expire weekly. Can you give some background on how these contracts work and how they might differ from standard listed calls and puts on equities?
Good question. What you’re seeing listed in names like Apple (Aapl), General Electric (GE), Google (Goog), and other highly liquid, large-cap stocks are weekly options. The exchanges and your broker can provide you with an up-to-date listing. This product will continue to grow, given the strong response from option traders for this new offering.
With these contracts, there are similarities, as “weeklys” are standardized contracts in most ways. For one, the models used to generate prices for regular contracts are the same as for the weeklys.
The weekly is simply a means by which to allow traders to place positions on a very short-term contract when none would otherwise be available if the front-month contract still had two to about five weeks of life remaining. This also means the risks (and rewards) surrounding the theta and gamma are heightened, as they would be with regular contracts.