It's Thursday, and a new set of weekly options will begin
trading. Under an initiative that's been expanding this year,
investors can contracts on 28 stocks, indexes and exchange-trade
funds that will have a lifespan of just seven trading sessions.
That's less than one-third the life of normal front-month options,
giving fast-money traders a great shot at instant
Every Wednesday the CBOE announces which underliers will trade on a
weekly basis. These include the usual high-volume suspects such as
Apple, Ford Motor and Cisco Systems, which each trade more than
70,000 contracts in an average session. But the list includes some
much-less frequently traded names such as the Direxion Daily
Financial Bull 3x (
) and the Direxion Daily Financial Bear 3x (
), typically trade fewer than 20,000 times a day. FAS and FAZ move
triple the broader financial index, either directly or inversely,
as their names suggest.
Given their shorter life spans, weekly options trade a steep
discount to standard front-month calls or puts with several weeks
until expiration. That means investors can achieve much more bang
for their buck if their timing is correct.
Consider the FAZ, already a highly leveraged product in its own
right. If an investor had purchased the fund itself the morning of
Aug. 19, he or she would have paid $15.13 and seen it peak at
$17.75 yesterday - representing a 17 percent profit. If he or she
had purchased standard September 16 calls over the same span they
would have paid $1 and seen them reach a maximum value of $2.52, a
profit of 152 percent.
If they were really impatient, they could have purchased the
weekly 16 calls expiring Aug. 27 for $0.44. Those contracts would
rocket all the way to $1.80 yesterday, 309 percent above their
Don't forget that FAZ is already designed to move three times
the financial sector, but in the opposite direction. If we had
simply shorted the SPDR Select Sector Financial ETF (
) over the same period, we would have earned less than 6
In other words, there's leverage (
). There's leverage on leverage (front-month options). And there's
even greater leverage (weekly options).
Of course, nothing is free. In return for that greater
performance, you have much faster time decay. If the underlier
doesn't move in your favor, your premium will decay in a hurry.
These instruments have many potential applications, and they are
quickly growing in popularity. We'll explore them, and potential
strategies, each Thursday that a new roster of underliers is
(Chart courtesy of tradeMONSTER)