Weekly Options Make Every Friday Payday!

There is a new gold rush for covered call writers called weekly options, or “Weeklys.”
Weeklys have been around since 2005 and have hardly been noticed because the option offerings were limited to the S&P 500 (SPX) and the S&P100 (OEX). In June of 2010, Weeklys were offered on the SPY, QQQQ, DIA and IWM, and in July 2010 the offerings were extended to equities and ETFs. Stocks like Apple, Amazon, Netflix, Microsoft, Intel, Cisco, Research in Motion, IBM, Goldman Sachs and Bank of America, and more are now available.

In addition, there are some solid ETFs like the QQQQs (NASDAQ), GLD and GDX (Gold), SLV (Silver), USO (Oil) and FAS (3x bull), to name a few. There are about 30 at the moment and growing. However, the list can change weekly because each option exchange is allowed 5 picks per week to add to the Weekly list. If some for reason an exchange is not getting the volume, they can choose another stock.

Weeklys come out every Thursday and expire the following Friday. There are no new Weeklys in the final week where the monthly options expire. You can just write the next week from the monthly list.

Why Weeklys Explode Covered Call Writing Profits

Earn More Premium

Selling call options four times a month versus once is a pure gift. With option volatility at the moment, the premiums are fat and an experienced covered call writer can earn A LOT more premium. Doubling the monthlies in many cases is not unreasonable. That’s like your boss calling you into their office and telling you they are doubling your salary and will now pay you every Friday! Nice. Also, if you use a long-dated put for protection, this “insurance” can be paid for very fast due to more writes per month.

Short Expiration

Setting your crystal ball to look out 8 days versus 30 is much easier. As traders know, the trend is your friend and it’s much easier to look at what is happening in the week ahead. One of the biggest complaints about covered call writing is what to do if the stock really runs up and you have to either forgo the increased gains over the call option strike you sold or buy back the call at a much higher price. If this happens, it’s a lot easier to adjust over one week and reset with a new trend the next week.

An Avalanche of Time Decay

All call writers love and bank on time decay. With Weeklys, time decay is greatly accelerated. There have been times that calls I sold on Thursday morning on introduction eroded over 30% by Monday’s close. I love weekends now more than ever! You can write near-the-money calls or at-the-money-calls and collect the higher premiums due to the rapid time decay.

Sit out Earnings Week

How many times have you crossed your legs and held your nose during earnings week? Well, now you can just sit it out. Weeklys offer the ultimate in flexibility. You can also trade the news that week before or after the event. Again, you can be in or out of the market weekly. THAT is flexible.

Super Size Premiums by Selling Weekly Puts

Your stock’s trend is solid, you have a buy / write for the next week and the money is in your account. Weeklys offer an astonishing opportunity to super size returns by selling a naked put or a put spread (to limit risk and to use less margin) for more premium. Just follow normal put selling rules; sell below a strong support point, at least one strike out of the money and maybe more if the premiums are good.

It’s amazing how many experienced investors and fund managers do not know much about weekly options. The word is spreading. One minor irritating issue is many retail brokerage houses do not offer Weeklys on their platforms. E-Trade and Charles Schwab do not as of this time. Schwab is scheduled for January 2011 and E-Trade has no date. Besides the sophisticated direct access platforms, there is Think or Swim (TOS). TD Ameritrade bought TOS and clients get the platform. As a non-client, you can still download and use the platform in play mode to paper trade and get some experience. There support is quite good too.

There is a lot to know about the various call strategies for up, down or sideways markets. The more you learn, the more you earn.