 | This Week in the Market Full calender. New expiration cycle. Jul 15: Retail Sales Jul 16: CPI Jul 16: Industrial Production Jul 17: Housing Starts Jul 18: Jobless Claims Jul 18: Philadelphia Fed Jul 19: Expiration Read the Options Blog online |
| Time Decay and Weekly Options One of the characteristics of options that I talk a lot about with my options coaching students is that premium sellers see the most dramatic erosion of the time value of options they have sold during the last week of the options cycle. Most premium sellers strive to keep the options they have sold short (also known as options they have "written") out-of-the-money (OTM) in order that the entirety of the premium they have sold represents time (extrinsic) premium and is subject to this rapid time decay. With 12 monthly cycles, there historically have been only 12 of these final weeks per year in which premium sellers have seen the maximum benefit of their core strategy. The widespread use of weekly options has changed the playing field. Options with one week durations are available on several indices and several hundred different stocks. These options have been in existence since October 2005 but only in the past couple of years have they gained widespread recognition and achieved sufficient trading volume to have good liquidity. Further now, there are weeklys that go for consecutive weeks (1 week options, 2 week options, 3 week options, 4 week options and 5 week options) that were just late last year. Standard trading strategies employed by premium sellers can be executed in these options. The advantage is to gain the "sweet spot" of the time decay of premium without having to wait through the entirety of the 4 to 5 week option cycle. The party never ends for premium sellers using these innovative vehicles. Traders interested in using these weeklys MUST understand settlement procedures and be aware of last days for trading. John Kmiecik Editor, The Options Blog Newsletter
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