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All information you provide will be used by Fidelity solely for the purpose of sending the email on your behalf. The subject line of the email you send will be "Fidelity. There have been a number of advantageous developments for options traders over the past 10 years. One of those advances offers you the ability to potentially take advantage of market events more efficiently—with options that expire weekly. The construction of Weeklys is nearly identical to traditional options contracts in every way but one.
Just like traditional options contracts, Weeklys grant the owner the right, but not the obligation, to buy or sell a security at a specified price before a certain date. The buyer of a Weekly call has the right to buy the underlying stock at a set price until the option contract expires. The buyer of a Weekly put has the right to sell the underlying stock at a set price until the date that the contract expires. This date, known as the expiration date, is the lone differentiator between Weeklys and traditional options, and is critical to understanding how weekly options work.
As their name suggests, Weeklys expire every week, typically on Fridays at market close. Traditional options contracts typically expire on the third Friday of each month.
Weeklys are available for a wide range of securities, including stocks, ETFs, and broad-market indexes see sidebar. There are several important implications for the shorter expiration date of Weeklys. Due to the relatively short time until expiration, Weeklys generally sell at a lower premium to otherwise equivalent options with longer expirations.
The reason should be intuitive: Contrast this pricing aspect of Weeklys with that of LEAPS, which usually sell at a higher price than traditional options because of the greater time value—allowing for a greater possibility the option could finish in the money.
Perhaps the most valuable benefit of Weeklys is that it may be possible to more efficiently employ short-term strategies—including targeting volatility associated with an earnings announcement, economic report, or other key event that might occur on a specified date—compared with longer-term options.
Instead of purchasing a regular options contract that might last several months, you can target a specific date and time period using Weeklys. For instance, assume you enter into a position using traditional options that does not go as you expect. Because of the short window associated with Weeklys, it may not be possible to effectively manage your risk in this fashion.
Also, you may want to practice-trade Weeklys first to get a sense of how the implied volatility, Greeks , and other factors may differ from traditional options. These risks are in addition to those inherent to all options.
Before trading any type of options contract, you should fully understand how they work and what the risks are. If you do trade options, Weeklys may help you find a better contract for your strategy. Get a weekly subscription of our experts' current thinking on the financial markets, investing trends, and personal finance. Please enter a valid name. First and Last name are required.
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Option trading entails significant risk and is not appropriate for all investors. Certain complex option strategies carry additional risk. Supporting documentation for any claims, if appropriate, will be furnished upon request. Greeks are mathematical calculations used to determine the effect of various factors on options. Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness.
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The subject line of the e-mail you send will be "Fidelity. Your e-mail has been sent. Related Articles How to sell covered calls This options strategy can potentially generate income on stocks you own.
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