Back to the Basics: Weekly and Monthly Options

As new traders flood the market, a return to the fundamentals may help beginners understand the fundamentals of options trading. To better assist them, we are exploring how weekly and monthly options trading differ. 

Stock options are contracts that represent the right to buy or sell shares of the underlying equity at a predetermined price, and by a predetermined date. These options are a flexible way to trade, with long or short predictions in the way of calls (bullish) or puts (bearish). As indicated by their names, weekly stock options expire on the Friday's of their respective week, while monthly stock options expire on the third Friday of each month. Weekly options are listed the Thursday eight days prior, and it's worth noting that weekly stock options aren't offered on the monthly options expiration date. 

Weekly options trading allows traders to make more short-term bets on a stock, relative to the standard monthly trading. This lets traders take more recent news into account, and speculate on close upcoming events, for example, increased upside or downside for a stock after it reports quarterly earnings. However, due to their short life-span, it's difficult to revise your trade before the contract expires if the stock makes an unfavorable move. 

When it comes to options trading after Trump's election victory, tracking ETF options activity gives some insight into trader sentiment, as there's been a shift in several sectors. Options will also play a large role in the S&P 500 Index's (SPX) next move, per Schaeffer's Senior V.P. of Research Todd Salamone.