There’s a new man in town! A relatively new options product is now available called the Weekly Options Series or Weeklys. These weekly expiration options are listed on a Thursday and expire the following Friday. The exception is that weeklys are not traded the week of expiration Friday and therefore do not list new weeklys on the second Thursday of the month. The next new weekly series is listed on the Thursday immediately prior to expiration Friday. An investor needs to carefully examine the option symbols which will display the precise expiration date of an option and that will identify the option as a weekly. It is yet to be determined if these new products will have a place in our world of covered call writing. My initial thoughts are that it would NOT have a place in this strategy because of the inability to institute exit strategies to mitigate losing positions. Also the number of underlying securities that have weeklys is quite limited. However, the BCI team will continue to monitor these and other derivatives to evaluate any potential for profit-generating opportunities. As of September 2010, here is a list of the available weeklys for stocks and ETFs:
|Ticker Symbol||Name||Product Type|
|OEX||S&P 100 Index (American style)||Index|
|XEO||S&P 100 Index European-style||Index|
|DJX||Dow Jones Industrial Average||Index|
|SPX||S&P 500 Index||Index|
|NDX||NASDAQ 100 Index||Index|
|EEM||iShares MSCI Emerging Mkt Index||ETF|
|FAS||Direxion Daily Fin’l Bull 3X Shares||ETF|
|FAZ||Direxion Daily Fin’l Bear 3X Shares||ETF|
|GLD||ishares SPDR Gold Trust||ETF|
|GDX||Market Vectors Gold Miner ETF||ETF|
|IWM||iShares Russell 2000 Index Fund||ETF|
|QQQQ||Nasdaq-100 Index Tracking Stock||ETF|
|SPY||S&P 500 Depositary Receipts||ETF|
|USO||United States Oil Fund||ETF|
|XLF||Financial Select Sector SPDR||ETF|
|TLT||iShares Barclay’s 20+ yr Treas. Bond||ETF|
|VXX||iPath S&P 500 VIX Short-Term FT||ETN|
|BAC||Bank of America Corp||Equity|
|CSCO||Cisco Systems Inc.||Equity|
|F||Ford Motor Company||Equity|
|GE||General Electric Company||Equity|
|GS||Goldman Sachs Group, Inc.||Equity|
Some securities such as QQQQ, SPY and IWM have both weekly and quarterly expirations. There are a few heavily traded ETFs that, in addition to the standard monthly expiration contracts also have quarterly expiring contracts. These unusual contracts will expire at the end of the month in March, June, September and December. Many of the strike prices in these months will show different premiums for the same strike prices. For example, QQQQ may have two $45 strikes, one expiring on the third Friday and the other at the end of the quarterly trading month. The latter will show a slightly higher premium due to the added time value. Other ETFs that have quarterly contracts include SPY, DIA and IWM and others are expected to be added in the future.
For a week when the quarterlys and weeklys expire on a different day (quarterly does not expire on a Friday) the date in the ticker will differ and the two will be easy to distinguish.
When both the quarterlys and weeklys expire on the same day the exchanges will not create a weekly the week before expiration because the quarterly will serve the same parameters on that week as a new weekly would. It would have the same premium value (intrinsic and time value). Bottom line: when the weekly and quarterly dates are the same, there is only one option available per strike price.
Premium members: A complete list of securities with weekly and quarterly expirations has been uploaded to the “member resource” section of your premium site
Review of traditional option expirations:
All options are defined by an expiration month and date (the 3rd Friday of the month) after which the contract becomes invalid and the right to exercise no longer exists. When options began trading in 1973, the CBOE (Chicago Board Options Exchange) decided that there would be only four months at a time when options could be traded. Stocks were then randomly assigned to one of three cycles:
- January cycle- options available in the 1st month of each quarter (Jan., April, July and Oct.)
- February cycle- options available in the middle month of each quarter (Feb., May, Aug., and Nov.)
- March cycle- options available in the last month of each quarter (March, June, Sept., and Dec.)
This proved to be a workable concept until options gained in popularity and there was a demand for shorter-term options. In 1990, the CBOE decided that each stock (with options) would have the current and following months to trade PLUS the next two months from the original cycle (hope your head isn’t starting to spin). Let’s simplify things by looking at a chart:
Current (Front) Month
|January||February||April (1st month)||July (1st month)|
|January||February||May (2nd month)||August (2nd month)|
|January||February||June (3rd month)||September (3rd month)|
If the current month is January, we see that all options are available for both the current (January) and next month (February). The last two option expiration months available will depend on their original placement in one of the three cycles:
- January cycle- will also have April and July expirations
- February cycle- will also have May and August expirations
- March cycle- will also have June and September expirations
Now if your head has stopped spinning and you’re feeling a bit better, I ask you NOT to put away the Tylenol. Here come the LEAPS (Long term Equity Anticipation Securities) which are options with longer term expirations. Only heavily traded securities like Microsoft have these type of securities. These equities will have options with more than four months of expirations, some up to seven months. LEAPS can further complicate these cycles but that’s a discussion for another day. Suffice it to say that a vast majority of stock options will fall into the four month cycle.
Those of you following the Blue Collar System of selling predominantly 1-month options need not be concerned about those dates further out. However, intelligence does breed curiosity and many of you have “peaked” ahead and wondered what was up. Now we know so it’s back to generating cash by selling covered call options.
This was a terrific week in terms of positive economic news:
- On Monday, the National Bureau of Economic Research’s Business Cycle Dating Committee announced that the recession of 2007-2009 ended in June of 2009.
- The Federal Open Market Committee (FOMC) voted to keep federal funds rate between 0% and 0.25% “for an extended period” in order for the economy to expand.
- The Conference Board’s index of leading indicators rose 0.3% in August, beating expectations.
- New residential construction rose in August for the second straight month.
- Sales of existing homes increased 7.6% in August in line with expectations but still historically low.
We cannot ignore the fact that economic growth is sluggish but palpable as unemployment still remains high. For the week, the S&P 500 rose 2.1% for a year-to-date return of 4.5% (including dividends).
The reason I remain “cautiously” bullish during this September run-up (and not more so) is that the market appreciation has occurred on unimpressive volume. Technicians always put more credence in the moving averages and momentum oscillators when they coincide with strong volume. That is not the case this month. Let’s look at a 1-year chart of the S&P 500 and view the strength of the last three uptrends:
Note how the uptrend at the end of 2009 (red) and the early part of 2010 (blue) occurred on stronger and increasing volume while the most recent September 2010 uptrend has taken place on weaker and declining volume. As a result of this analysis, I am treating my trades as if the market will continue sideways until such time that bullish indicators are confirmed with stronger volume.
IBD- Market in a confirmed uptrend
BCI- Cautiously bullish selling both I-T-M and O-T-M strikes
Wishing you much success,
Alan ([email protected])