Weekly Option Expirations

by Jeff on February 26, 2010

I have been testing an option strategy that was suggested by Alan, one of my readers. He said that I should try using the OEX weekly expiration cycles for some quick plays – using any successful existing option strategy. The idea being that you have a maximum of time decay since the cycle is only one week, with a weekend built in. My tests showed me that using the same strategies that I currently use, I was able to close trades within 2-3 days with 90% of my profit target reached.

The OEX weeklies are loaded up each Friday except when the normal month expiration is the next week (then you just use the normal month expiration cycle instead). Today they were available for next Friday’s expiration. One word of caution: the bid/ask spreads are huge until the strike starts to get some volume – so be careful.

The market has been in a rather tight trading range, so I decided to do a MAR1/MAR 500/510 Double Calendar at about 10:00 this AM. Right now the delta is at -1.39 and the trade is up 32.34. The objective here is to have the price near what it is now and get out either Monday or Tuesday – all I am looking for is around $100 on this trade; a 16.6% gain in just a few days.

Closed Today

I closed my FSLR and JOYG positions today. FSLR because it was at 75% of possible profit and I wasn’t taking too kindly to the gap up this morning. I closed JOYG due to earnings next week at it too was at about 75% of possible profit.

JOYG Earnings Play

Oddly enough, I also opened a reverse Iron Condor on JOYG in preparation for their earnings next Wednesday (AM). All the stock needs to do is move below 45 or above 55 at expiration and the profit would be $155.

Tagged as: Calendar Spread, Iron Condor, option spread, options

  • Bruce

    I am not sure I understand your comment Option Expert. How can an option gap after hours? Or do you simply mean the underling (which in this case means 100 stocks have to gap up or down).nnAs for assignment can’t you beat that with the European settled XEO instead of OEX or does that not have weeklies?

  • Bruce

    I am not sure I understand your comment Option Expert. How can an option gap after hours? Or do you simply mean the underling (which in this case means 100 stocks have to gap up or down).

    As for assignment can't you beat that with the European settled XEO instead of OEX or does that not have weeklies?

  • http://theoptionguru.com/blog Jeff W

    Option Expert,

    Thanks for the comment. You are absolutely correct about the danger on cash settled indices. I actually wrote a post about it titled “A Few Words about Index Options – Be Careful” that you can read using this link: http://wp.me/pCyRr-hg

    I hope you didn't read that I was telling anyone to do anything. I try to avoid any comment like that. I am simply relaying what I am doing (please see my Disclaimer).

    ◄ Jeff ►

  • Option Expert

    You should be careful telling traders to sell options on the OEX as it can gap down aftermarket and you will be exercised (exercise price reverts to 4pm ET the previous close). They will then be cash settled and you will owe the difference, yet your long position gets hammered. This causes you to lose tremendously more than initially measured in your Risk Analysis. Just an FYI!

  • Tim

    Okay, finally clear now. So you are wanting the OEX to continue in this narrow range allowing the front month MAR1 to decrease in value rapidly in the next day or two. And the Margin requirement is Zero as covered by the far month

  • http://theoptionguru.com/blog Jeff W

    Tim,

    It can get a bit confusing: Both your Puts should be at 500 and both your Calls at 510. The debit shows as 6.55 right now. Check out the pic at the link below – it's exactly how your order should look in the Analyze tab.
    http://bit.ly/ddBtrm

    ◄ Jeff ►

  • Tim

    Thanks for jumping right back with the response and I think I have it loaded in TOS.
    To verify, Is this correct on the order/trade:
    S Mar1 500 C and P
    B Mar 510 C and P
    for a debit of …

  • http://theoptionguru.com/blog Jeff W

    Tim,

    Thanks for the encouraging feedback.

    This isn't a custom order – the combo is buried in the drop down menu. First select Buy, then slide down to Double Diagonal (near the bottom) then select Double Calendar. Start at the front month (MAR1) and at the Call strike you want. Once the order is created (either in Analyze or Trade tab), you can adjust expirations and strikes.

    ◄ Jeff ►

  • http://theoptionguru.com/blog Jeff W

    Other Jeff,

    Great to hear from you! SPX and OEX are cash settled indexes (can't buy shares), so you would have to actually do a Calendar with the Long Call out several months. You know my butt would get chewed out if I put that into the justcoveredcalls group. However, it is a subject that may be suitable to ConservativeOptionStrategies or MarketStudent Yahoo groups.

    I need to do a bit more research and test it out. I will be posting about this in the future, so keep an eye out for it.

    ◄ Jeff ►

  • http://coveredcallsadvisor.blogspot.com/ Jeff Partlow

    Jeff,

    Using these weekly options is an innovative strategy idea on your part. Would you consider making a post on the JustCoveredCalls group in this regard?

    Thanks for your consideration.

    Best wishes,
    Jeff P (the other Jeff)

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