Selling 1-month options is a core principle in the BCI methodology for covered call writing. As interest in stock options has been growing exponentially so have the number and type of options products available. It’s all about supply and demand. Over the past two years we have seen the number of securities associated with options grow dramatically as well as the development of new products such as weeklys and mini options. In this article I will focus on weeklys, options with weekly expirations.
Weeklys are options that provide expirations every week. Standard weeklys are listed on Thursdays and expire on the following Friday. A weekly is not listed if it expires on the 3rd Friday of the month, the date that monthly options expire. In the last year a new program of weeklys has been initiated, called expanded weeklys, where trading is permitted in up to 5 consecutive weekly option expirations for stocks, ETFs, ETNs and indexes. Below is a screenshot of weekly expirations available for both standard and expanded weekly programs:
Standard and expanded weekly options
As of 12-26-13:
- Standard weeklys available: 12-27-13 (about to expire) and 1-3-14
- Expanded weeklys available: 12-27-13, 1-3-14, 1-10-14, 1-8-14 (monthly), 1-24-14 and 1-31-14
As of 12-13-13, the BCI team expanded our Premium Stock Reports to include those stocks that have passed our rigorous fundamental, technical and common sense screens that also have weeklys. This information is located mid-report in the running list as shown below:
Weeklys and The Blue Collar Premium Stock Report
The column highlighted in pink lists the stocks in our report that also have weeklys associated with them. I highlighted YNDX in the yellow row. Let’s have a look at the January options chain for YNDX:
YNDX: January options chain
In the yellow field you will note 4 $38 strike prices. In the brown column one can see 4 distinct expirations: January 3rd, 10th, 18th (monthly) and 24th. YNDX was one of 15 stocks with weeklys on our Premium Stock Report. On our weekly ETF report, an additional 9 securities also had weeklys associated with them for a total of 24 securities with weeklys. Of the 15 stocks on the report dated 12-20-13, 14 were part of the expanded weekly program. Only LVS was part of the standard weekly program.
Conclusion:
Options are in great demand and so the number and type of products available are expanding as well. Our focus is mainly on monthly options but weeklys will also have a place in the portfolio of many BCIers. It is critical to stay educated as to the opportunities available to us as shown in this article.
Next live speaking engagement:
Houston, Texas;
Tuesday, January 14th
6:30 – 8:30
http://www.aaii.com/chapters/meeting?mtg=2576&ChapterID=12
Beat the rate increase for Premium Membership:
On January 17th, 2014 we will be raising subscription rates for both monthly and annual memberships. Current members will be grandfathered in to the current lower rates and need to take no action to retain this lower fee schedule. All new members who subscribe prior to January 17th will also be grandfathered in to the lower rates. Thanks for the positive feedback we have received for the new and enhanced version of our Premium Stock reports. Link to subscribe:
www.thebluecollarinvestor.com/membership/
Amazon sale:
I was just notified that Amazon.com is running a 1-week sale on the kindle version of my first book, Cashing in on Covered Calls starting Sunday, the 29th of December:
Market tone:
The holiday-shortened week was generally a good one for the stock market. This was partly due to positive economic reports as well as the news last week regarding the government fiscal and monetary policy along with Congress passing a budget deal. Here is a summary of this past week’s economic reports:
- Orders for durable goods rose by 3.5% in November more than double the 1.7% analysts were expecting
- According to the Commerce Department, personal income was up by 0.2% in November, mainly due to salary increases in the private sector
- Personal spending also rose by even more, 0.5%,due to a strong stock market, an improving labor market and rising home prices
- Consumer spending has increased an annualized 5.7% in the past 2 months, a bright sign for our economy
- Personal savings dipped to 4.2% in November, a 9-month low, but still well above the pre-recession rates in 2006 – 2007
- Core inflation is at 1.1%, well below the Fed’s target of 2%
- New home sales dropped to an annualized rate of 464,000 in November, but well above the 445,000 predicted by analysts
- New home inventory fell to a 4.3 month supply which played a role in the median price rising to $270,900 in November, 106% higher than a year ago
- Initial jobless claims for the week ending December 21st came in at 338,000, less than the 349,000 expected
For the week, the S&P 500 rose by 1.3%, for a year-to-date return of 32%, including dividends.
Summary:
IBD: Confirmed uptrend
BCI: This site remains moderately bullish favoring out-of-the-money strikes 2-to-1.
Wishing you a safe and happy New Year and a prosperous 2014,
Alan and the BCI team
Premium Members,
The Weekly Report for 12-27-13 has been uploaded to the Premium Member website and is available for download.
Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them at The Blue Collar YouTube Channel. For your convenience, the BCI YouTube Channel link is:
http://www.youtube.com/user/BlueCollarInvestor
Best,
Barry and The BCI Team
Hello Alan,
Happy Holidays! When you sell an Option, how many Contracts do you usually sell, 2, 5, 10, 20, etc.? I thought I heard or read that Contracts greater than a quantity of 10 are filled differently than Contracts 10 or less.
Thanks,
Phil
Phil,
Happy holidays to you as well.
The number of contracts sold per position depends on several factors including the cash available to trade and the price per share allocated to that position. I rarely will trade more than 10 contracts per position. The reason the 10 contract cutoff is significant is because for many securities the “Show or Fill Rule” will not apply and limit our ability to negotiate a better bid or ask price (see pages 225 – 227 in “Encyclopedia…”) for more details.
Alan
Alan
What do you think of buying leaps rather than stocks . If a major correction occurs, you can only lose the premium you paid– about 6% per year. This is similar to the amount lost on a stop or a put, and you don’t have to buy the stock. If the stock rises you only decrease your gain by the cost of the leap.
Thanks
Mike
Hi Mike,
Using LEAPS as a stock surrogate is a viable strategy that has its pros and cons. It is structured such that the difference between the strikes plus the short call premiums received is greater than the cost of the LEAPS if exercised. Here is a link to an article I published on this topic:
https://www.thebluecollarinvestor.com/leaps-and-covered-call-writing-2/
Alan
Alan,
Thanks for this piece on weeklys. I was willing to roll over LVS into Jan 14 but they have an earnings report due just prior to the Jan 18th expiration. So I looked at weeklys but the open interest was well below BCI guidelines and nowhere close to the monthly expiration, this despite the fact that the premiums were quite attractive, so I allowed assignment. Shouldn’t demand be reflected in the open interest? I’d be interested in hearing your comments on this.
Mike,
Of the stocks with weeklys on our current Premium Watch List, LVS is one of the few that are part of the “standard” series and therefore only available for 1 week. Naturally, OI is going to be less than options available for a month or more. Another factor to look at in these scenarios is the bid-ask spread of that particular option. If the spread is tight in comparison to the time value of the premium, I would be comfortable entering the trade expiring prior to earnings. Evaluate if you had to buy back the option based on the spread and how that would impact the over profit resulting from that trade.
Alan
Alan
Cheers Alan thanks for everything, is there any type of trading for a risk averse newbie i could get into for say $2000 dollars?
Steven
Hi Steven,
Although I cannot give specific financial advice in this venue, I can describe what I have written in my latest book geared to beginner investors, “Stock Investing For Students”
A relatively safe way of entering the market is to dollar-cost-average into a low-exense ratio broad market index mutual fund like SWPPX and SWTSX. These have very low minimum investment requirements and can be set up to automatically be purchased by a specific dollar amount on a specific date…very user friendly.
Alan
Premium members:
This week’s 6-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site. The report also lists Top-performing ETFs with Weekly options.
For your convenience, here is the link to login to the premium site:
https://www.thebluecollarinvestor.com/member/login.php
NOT A PREMIUM MEMBER? Check out this link:
https://www.thebluecollarinvestor.com/membership.shtml
***On January 17th, 2014 we will be raising subscription rates for both monthly and annual memberships. Current members will be grandfathered in to the current lower rates and need to take no action to retain this lower fee schedule. All new members who subscribe prior to January 17th will also be grandfathered in to the lower rates. Thanks for the positive feedback we have received for the new and enhanced version of our Premium Stock reports.
To a prosperous and lucrative 2014,
Alan and the BCI team