When talking about stock options there are many common questions that come up. The reason these questions can be tricky is that there is no perfect answer that fits each situation. It all depends on your outlook and what you are looking to accomplish with that trade.
Over the past few years weekly options have become very popular with traders because in most cases they provide a cheap way for the retail trader to get into a trade. Weekly options expire each Friday, which means they are great products for traders looking for quick movement in the stock or ETF. Options traders use the Greeks to track how the price of an option will change based on changing market conditions.
So if an Apple 95 call option has a delta of. The second Greek that can be very helpful is called Gamma. However, the Delta will also change as the price of the stock changes. This means the Delta has changed by. Going back to our discussion on whether we should use the monthly or weekly options, we said that it all depends on our outlook for the stock or ETF.
If we are expecting a quick move within the next few days then the weekly options will give us the most bang for our buck. This is due to the fact that Gamma is higher the closer we get to expiration see chart below. As a result of the higher gamma in the weekly options the price of those options will react quicker to movement in the stock.
We will see more powerful moves as long as the move happens quick enough. Remember options are decaying assets which means the longer we hold them the more time value comes out. If we are expecting a directional move in the stock but the overall market is moving slower the monthly options will be a better choice.
As a result if the move takes longer than expected we still have a good chance of being profitable. To summarize, if you are expecting a quick move in the stock or ETF then the weekly options will give you the best potential for a home run play. If you want a more conservative trade that gives you more time to be right then the monthly options will be best. While the Greeks can seem complex at first, as you can see just knowing some of the basics will help you increase the odds of success.
Options are very flexible products and allow us to structure trades to fit our outlook on the markets unlike any other product out there. Knowing how an option will react to changing market conditions will lead to more profitable results. Your email address will not be published. Which strike price should I trade? Should I buy or sell the options? Should I use monthly or weekly options? However, are they always the best products to use? It all depends on your outlook for the stock or ETF.
Take Delta for example. This can be helpful as traders try and plan out their trade. In other words Gamma can be viewed as the fuel that is thrown on the fire. As long as the move happens quick enough then we can overcome the time decay. Monthly or Weekly Options? It is a more aggressive way of taking the trade. The following two tabs change content below. Latest posts by CoachMike see all. Leave a Reply Cancel reply Your email address will not be published.
Here is the website link:More...