Weekly Options: How They Work, Advantages and Disadvantages

What Are Weekly Options?

Weekly options are much like monthly options. They're released many weeks before expiration. Investors who historically enjoyed 12 monthly expirations on the third Friday of each month can enjoy 40 expirations per year in 2024.

How Weekly Options Work

The Chicago Board Options Exchange (CBOE) introduced standard call options in 1973. The put option was introduced in 1977. They've proven to be extremely popular as trading volume has grown handily over the decades. The Chicago Board Options Exchange (CBOE) began a pilot program with weekly options in 2005, 32 years after introducing the call option.

Special Considerations

You can implement virtually any strategy with weeklys that you can use with the longer-dated options. The weeklys are a bonanza for premium sellers who like to take advantage of the rapidly accelerating time decay curve in an option's final week of its life. You can get paid 40 times per year or so instead of 12.

Advantages and Disadvantages of Weekly Options

Advantages

The weeklys offer something you can't accomplish with the monthlies in three out of four weeks: the ability to make a very short-term bet on a particular news item or an anticipated sudden price movement.

Let's say it's the first week of the month and you expect XYZ stock to move because their earnings report is due out this week. It would be possible to buy or sell the XYZ monthlies to capitalize on your theory but you would be risking three weeks of premium in the event you're wrong and XYZ moves against you. You only have to risk one week's worth of premium with the weeklys. This will potentially save you money if you're wrong or give you a nice return if you're correct.

The open interest and the volume of the weeklys are large enough to produce reasonable bid-ask spreads but they're usually not as high as the monthly expirations. The well-known pinning action that takes place in monthlies, where a stock tends to gravitate toward a strike price on expiration day, doesn't seem to happen as much or as strongly with the weeklys.

Disadvantages

Weeklys come with a couple of negatives. You'll rarely have time to repair a trade that's moved against you by adjusting the strikes or waiting for some kind of mean revision in the underlying security because of the short duration and rapid time decay of weeklys.

The open interest and volume are good but that isn't necessarily the case for every strike in the weekly series. Some strikes will have very wide spreads and that's not good for short-term strategies.

Examples of Weekly Options

Indexes with available weeklys include:

• Cboe Global Markets, Inc. (CBOE)
• S&P 500 Index (SPX)

Popular exchange-traded funds (ETFs) for which weeklys are available 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)

The Bottom Line

The Chicago Board Options Exchange (CBOE) introduced a pilot program with weekly options in 2005 and they’re still available and thriving in 2024. They’re very similar to monthly options except they expire each Friday after an eight-day lifespan. Multiple indices and ETFs offer weekly options if you think you’d like to give one or more a try, including the S&P 500 Index (SPX).

Disclosure: Investopedia does not provide investment advice. Investors should consider their risk tolerance and investment objectives before making investment decisions.