Active Stocks Work for Weeklys

The emergence of Weekly options could make waiting for expiration action a thing of the past. The new Weeklys last only an evanescent week, and expire on Fridays. One of the ways options players build their potential profit in a trade is by strategically using the time element to their advantage. With Weekly options time is of the essence. And because time is so short, a volatile stock can offer great opportunity. Let’s take a closer look at these options, and then let’s take a look at what specific securities are prime candidates for the weekly option trade.

The Flexible Advantage

Weekly options, or “Weeklys” as they’ve become known, are growing in popularity with traders, and for good reason.  Their flexibility provides plenty of advantages, not the least of which is the ability to make targeted, time-sensitive trades that take advantage of market events like earnings and the release of key economic data. Weeklys also inherently offer a greater delta, meaning they are very responsive to changes in the underlying security’s price. They also don’t suffer from a high theta, meaning that time decay is never an issue.

Weeklys can be found on traditional indices such as the heavily traded American style S&P 100 Options (OEX), and the European style S&P 100 Options (XEO).  Exchange-traded funds such as the SPDR S&P 500 (NYSE: SPY) and the PowerShares QQQ Trust (NASDAQ: QQQQ) also can be traded with Weeklys. (You can find a complete list of Weeklys at the CBOE website.

Where the Real Money Resides

Access to Weeklys on the major indices and on big ETFs are great, but the real profit potential in Weeklys can be found in individual stocks. That’s because individual companies in general are much more susceptible to events that create volatility. That volatility, if played correctly, can result in some very big winning weekly option trades.

Given the über-short duration of these trading instruments, it’s absolutely essential to make your put and/or call buying decisions during a week when the potential news value is greatest, such as when a company is about to announce earnings or when a big new product announcement is expected. Of course, that still leaves you with the question of what stocks, and what Weeklys, make the best potential candidates. Let’s take a look at five candidate stocks that have seen either heavy open interest in their weekly options, or that tend to have a history of exhibiting a lot of news-related, tradable volatility.

Apple

Iconic personal technology company Apple (NASDAQ: AAPL) has seen some heavy open interest in its weekly option calls. This bullish interest may have been in response to the buzz surrounding the just-concluded Consumer Electronics Show, or its deal with Verizon (NYSE: VZ) to begin providing service for the iPhone, or CEO Steve Jobs leave of absence, or the company’s great quarterly earnings. That’s a lot of news in about four weeks. Apple is a company famous for telegraphing big announcements, and as such it’s a great candidate for weekly options newshounds.

Baidu

Chinese Internet company Baidu (NASDAQ: BIDU) can almost be thought of as a weekly options’ players proxy for the emerging markets of Asia. The tide in this market segment tends to change both abruptly and often, and as such aggressive bets on Weeklys can be both rewarding and disappointing. If volatile Chinese stocks are on the move, then Baidu weekly call options will likely be big beneficiaries. On the other hand, if Chinese stocks take a hit the way they did after that country’s recent interest rate hike, then Baidu’s weekly option puts are where you’d want to be.

Ford

The buzz surrounding automaker Ford (NYSE: F) has truly been electrifying of late.  That’s because the company’s recent announcement that it was entering the electric car market with a plug-in version of its popular Focus model created quite a stir. The company’s announcement that it plans to add 7,000 new workers this year also sent the stock spiking. Of course, these news items weren’t lost on weekly options traders. The anticipation this year is for Ford to post strong earnings. If the company makes good on that anticipation, then weekly calls might turn out to be winners. If they fail to meet expectations, then put players could drive away with some very big weekly smiles.

Goldman Sachs

Bellwether investment bank Goldman Sachs (NYSE: GS) is nearly always in the news, sometimes because of its high-profile connections with government officials, and other times because of the big bonuses it pays executives. Most often, however, it’s due to the big profits the company posts each quarter, although its most recent quarterly sent the stock down. All of these news items are potential generators of strong action in the stock, and that makes Goldman Sachs a great company to keep an eye on when looking for action in Weeklys.

Research In Motion

Research In Motion (NASDAQ: RIMM), makers of the ubiquitous BlackBerry smartphone, is one company that’s definitely seen its share of stock price ebb and flow. RIMM shares tend to move quickly when rivals like Apple make blockbuster announcements. The company’s shares also tend to move quite a bit on the buzz surrounding its own new products, and around its quarterly earnings release. The consistent volatility and high trading volume in RIMM shares make this company a solid candidate for Weekly option players of both the bull and bear variety.

Disclosure: At the time of this writing, Jim Woods was long SPY.