Weeklys: There are now 52 Expirations per Year, up from 12

Thanks to the CBOE, weekly expiration has arrived for a small (~20) number of stocks, ETFs, and indexes.  Information is available at the CBOE site.

New Weeklys are listed each Thursday and expire the following
Friday
, but no Weeklys are
listed when they would expire during expiration week for standard options  (3rd Friday).

The are now 52 option expiration every year.  This is good for the CBOE because trading volume is going to increase.



Option Description

Most of these options are 'regular' American style options and settle in shares.

Thus, if assigned an exercise notice on
any of the individual stocks or ETFs, you are obligated to sell shares
(if assigned on a call option) at the strike price or buy shares (if assigned
on a put) at the strike.

However, just to keep things interesting (and in my opinion, giving novice traders more chances to make a significant error), SPX and DJX options are European style and settle Friday mornings.

XEO is European style, but settles at Friday's close [corrected]

OEX is American style and settle in cash. 

One interesting idea used by the CBOE is
to change the list of stocks on a regular basis.  There is no major
revision each week, but stocks can be added or removed from the list.  The current list can be downloaded by clicking here.


Blogosphere

These options have been gathering much attention among bloggers and it's time  to join the discussion.  This product has been accepted by the public and there is every reason to believe it will continue to increase in popularity, as measured by trading volume.  


The Dancing Greeks

For anyone who loves to trade expiration and its characteristic BIG theta along with EXPLOSIVE 
Explosives gamma, this is your chance.  My fear is that the small trader, first getting started with options, will not understand just how volatile these options can be as the stock rips through the strike price in one direction or the other. 

This is truly the ideal tool for the big risk taker and makes it ever more difficult to try to classify options as a risk-reducing investment tool.

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"I thoroughly enjoyed your book “The Rookies
Guide to Options”.  The book has paid for itself many times
over.  Thank you."  VR


"I am finishing your book The Rookie’s Guide to Options
and I agree with the other reviewers on Amazon."   DE

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10 Responses to Weeklys: There are now 52 Expirations per Year, up from 12

  1. Joe 08/12/2010 at 5:40 AM #

    Mark,
    What do you think of using weeklies as form of short term protection for iron condors?

  2. Mark Wolfinger 08/12/2010 at 8:01 AM #

    Joe,
    Excellent idea.
    Costly in time decay, but far less costly in dollar terms when you want short-term protection.

  3. rick forno 08/12/2010 at 8:03 AM #

    Some of these weeklies have had some rather nice volume to them … may be institutional folks rather than retailers, but compared to other weeklies, there’s liquidity. (Then again, these are not pit-traded.)
    Could be interesting to use for speculation during catalysts (ie earnings) but not ready to jump in yet. Just watching them for a while to see how they behave, like I do with any new trading vehicle.
    Agree 100% it offers a temptation to newbies who may end up getting their heads handed to them if they don’t know what they’re doing.

  4. Mark Wolfinger 08/12/2010 at 8:17 AM #

    Rick,
    Buying these for earnings is still a gamble, but at last it’s better than buying 3- or 4-weeks options when you know that IV will get crushed as soon as news is issued.
    These have far less vega and are less costly to buy. Still a gamble, but that’s what the public wants.
    Good idea to take your time before deciding.

  5. Peter 08/12/2010 at 2:50 PM #

    Hi Mark,
    Just a correction: OEX is American style, but XEO is European style.
    Peter

  6. Mark Wolfinger 08/12/2010 at 2:52 PM #

    Thanks.
    I knew that at one time!

  7. David 08/13/2010 at 10:54 AM #

    European style options receive a 60/40 tax treatment from what I understand. Does that apply also if I buy say the SPX itself instead of the SPY and sell it at a profit in a taxable account? I’ll only pay short term gains on 40% where as if I bought the SPY and sold at a profit it would be 100% short term gains (assuming holding under a year)? Or does the tax benefit only apply to the options of these contracts?

  8. Mark Wolfinger 08/14/2010 at 11:03 AM #

    David,
    Yes, the Europeans style index options receive that favorable tax treatment.
    SPX gets the 60/40 tax treatment.
    SPY does not.
    Trading SPX is tax efficient, but do remember that each SPX contract represents ~10 SPY contracts. If you can trade the index, I would do so.
    Please be certain you understand
    settlement problems
    when using European options.
    Regards

  9. Ann 08/21/2010 at 4:40 PM #

    Question on the SPX. Can one buy the SPX outright in place of buying SPY ETF? Not the options but the SPX itself. If I wanted to allocate $20,000 into the S&P 500 in a taxable account I could just buy 20 SPX contracts (assuming the SPX was at 1,000). If so, would this qualify for that 60/40 tax treament if sold at a gain even if the options arent used?

  10. Mark Wolfinger 08/22/2010 at 11:18 AM #

    Hi Ann,
    You cannot buy ‘SPX’ in the sense that you can buy shares.
    The best you can do is buy an index fund that comes very close to mimicking the performance of SPX.
    More on this topic in a full blog post this week.
    Regards