Trading Rules for Weekly Options
While the advantages of trading weekly options are clear, a new trading mindsets and set of rules also apply:
1. Get your short-term charts and ebb/flow predictions ready.
One of the primary reasons equity and index options exist in their traditional time frames — with a lifespan of months if not more than a year — is to offer active investors a way to leverage his or her capital, while allowing them to ride out rough patches on the way to the end goal.
Weekly options, on the other hand, are a short-term chartist’s dream. The key question is: Where will this stock/index be in a week (or less)?
2. Use the market tide to your advantage.
Traders should tap the market’s near-term tidal forces since 3 out of 4 stocks tend to move in tandem with the market’s strong moves. Yes, given enough time, the best individual stock trends can defy the market’s ebb and flow. But the whole point here is speed, which means calling the market right at any given time is half the battle (whether you’re trading stock or index options).
3. Keep the original intent in mind.
It’s contrary to most everything we’ve been taught as investors, but the whole point of weekly options is to reap the benefit from a short-term move, so get in and out accordingly. Some traders are using them to profit from news announcements like earnings. Others are just using them to hedge a position through a certain time frame. Don’t be afraid to cut loose once your reasonable objective has been met.
The proliferation of weekly option trading is sure to be a beneficial one for traders. Like any other trading arena, though, it’s the mastery of the nuances more than the mechanics that will be the key to your success.