What are Weekly Options? Simply stated these are options that expire each week. Why do we care about this? It could be useful for a short term trade selling naked puts with the goal of those puts expiring worthless.
The CBOE has this to say about weekly options: "No one wants to wait. With Weeklys from CBOE, you don't have to. Weeklys are options that expire at the ends of weeks. This flexibility can provide investors with more targeted trading opportunities and can help investors take advantage of market events, such as earnings, government reports and Fed announcements. CBOE's Weeklys options are currently listed on Thursdays and expire the following Friday. New Weeklys are listed each week except that no new Weeklys are listed that would expire during the expiration week for regular options (the third Friday of each month). "
In order to search on weekly options go to the Expert Option Search page and select Weekly Options in the Sector drop down list. You can either select all dates or a specific date as shown below.
Lets go through a theoretical example for American Express (AXP) that expires on 10/7/2011. This example covers selling a cash secured/naked put with the goal of the put expiring worthless and the seller keeping the money. Why is this a "theoretical" example? Because we do not recommend any specific trades, just the tools for investors to find trades.
If you notice AXP has a handful of naked puts that expire on 10/7/2011.
Lets apply a couple of filters to our selection process, filters that attempt to help us to sell an option that will expire worthless.
1. Pick a strike with a low Probability of Assignment (POA). Remember the word "probability." Trades are all about probability and is most likely to happen. There is No Guarantee, anything can happen.
2. Pick a strike that is Out of The money. The further out the better.
3. Select the $41 strike for this example. It has a POA of 14%, ROI of .66% (not bad for a week) and is almost 9% out of the money.
4. Next lets look at a stock chart and support and resistance levels.
There is a major support level in AXP around the 44.90 level and AXP just dipped below it. The next support level is at 42.50.
Now we have to ask the question "Based on the recent market action, POA, OTM, and resistance levels is selling a naked put on AXP worth the risk for a 4-5 day trade?" If we answer yes sell the put, if not keep looking for the next trade.
We hope you find this search feature profitable. Best success in all your trading.