Commodity Options, Bond Futures, Stock Index Futures, e-mini Trading

Using weekly options to your advantage

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Using weekly options to your advantage

By Carley Garner of DeCarleyTrading.com

The CME Group has spent the last few years adding weekly options to their product arsenal.  Their goal has been to provide speculators with more “options”, but they’ve also succeeded in finding a way to increase trading volume and, thus, their bottom line.  In other words, weekly options have been a success on all fronts.

According to the U.S. futures exchange giant, weekly options provide users with increased flexibility in managing existing option positions, and new opportunities to trade high impact economic events.  In my opinion, this is an accurate description for those that understand their advantages of weekly options, but are also aware of the limitations.  The purpose of this article is to discuss both sides of the coin for various type of traders.

Advantage of weekly options

Cheap Insurance

Because weekly options can be purchased at low prices, they also provide an attractive method of insuring against losses on high risk speculations.  For instance, a trader that wants to go long an e-mini S&P ahead of a non-farm payroll report, or a corn bull looking to purchase a futures contract before a USDA announcement, might find it worthwhile to purchase a weekly expiring put option against their long futures contract to provide insurance against being catastrophically wrong.  Of course, traders can employ the same strategy using the monthly options, but monthly options typically require a larger cash outlay to purchase insurance.

Option sellers can also provide a hedge against disaster surrounding big announcements via the purchase of weekly options.  For instance, a trader that is bullish the stock market might sell a monthly expiring ES (e-mini S&P put) and then purchase a weekly ES put for less premium to reduces the risk of the trade.  The result is a lower risk and lower margin premium collection strategy.

 

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