Stocks & Commodities V. 32:1 (32-35): The Weekly Options, Part 1 by John A. Sarkett

The Weekly Options, Part 1 by John A. Sarkett

A Faster Game For Bigger Returns

They were introduced in 2005 and have gained a strong following. How do you trade them? In this first of two parts, see how one trader uses these options.

Options mentor Dan Sheridan describes the particular appeal of weeklys — options that expire each Friday versus traditional monthly options that expire every third Friday — quite simply: “Higher yield,” he says, “and less risk — that is, if your strategies and tactics are sound. That and it suits ‘type A’ personalities better, with more results in a shorter period of time. It’s like Pac-Man level 5.”

Sheridan leads some 1,500 mentees, all trading live, around the globe. The newest and hottest product in the virtual “workroom” is this very option product — the weekly option.

He compares a weekly to a traditional monthly option trader this way: “He may place $50,000 in a 40-day iron condor, with an eye to earn 5%, or $2,500. Using weeklys, he could allocate $10,000 to a weekly iron condor, and expect to earn the same $2,500, but in this case, generating a 25% return.”

That’s five times the return. Is it any wonder that the volume and market share of weeklys compared to all options traded have grown so dramatically in recent years?

Sheridan adds that the less-risk part comes from being out of the market for a greater percentage of the time. “Many of our traders are putting these on eight or nine days before expiration and are only in the trade two to three days; so at least two days per week, they are usually on the sidelines and can’t get hurt.” He continues, “With a huge up market for most of 2013, most of our weekly traders are positive for the year, getting better results than those who just stick with monthlys.”