Secret of Weekly Option Strategy?
This is due to the general characteristics of options. The greatest time decay occurs at the end of an option’s life. Prior to the availability of weekly options, the benefits of accelerated time decay could only be obtained once a month. There is now a continuous ability to benefit from accelerated time decay. This is due to the general characteristics of options.
Price of option is affected by Theta Greek everyday till expiry but its affect is more near to expiry.
If we divide our Price of option per day then Price per day decay/decline is most near to expiry.
Always remember that price movement can negate the time decay arbitrage, which is why it is very important
to make sure you are taking into consideration both Price per day decay by theta and price movement before determining a strategy to trade.
Weekly options vs Theta ? what is best to trade for weekly options?
- “Buy Options” only on start of week that is Friday, Monday and Tuesday mornings.
- “Sell Options” only on ending of week or closer to expiry of Thursday on Wednesday and Thursdays.
Option Strategies are made of Sell Options and buy Options which can be confusing how theta affects them. Here is quick way to check which is better.
Sell strategies at end of options cycle near expiry
- Sell related strategies like Bear Call spread and Bull put spread are good for Wednesdays and Thursdays.
- Similarly Neutral strategies with Sell orders at ATM like Short iron butterfly and iron condor are best on Wednesdays and Thursday. Theta is your friend and compensates for any any losses by price movements (Delta Greek). Its like swimming with the current direction of water flow where less strain needed to swim.
Buy Strategies at start of new options far from expiry
- Buying related strategies like Naked buy call and puts are better on Fridays to Tuesday mornings only like straddle where we buy both call and put to expect high directional move on any side.
- Long iron butterfly and other buy at ATM related strategies are better on Fridays to Tuesday morning. It is like swimming against water flow but water flow is not too fast, so there is high chance of succeed if we do it right.
Other Greeks like Vega has also affect on option price which can be correlated as option premiums being high or low. When option volatility is low then option prices are low and its best to stick with buying options against selling options. if we sell options on low volatility and if the volatility increases then prices shoot up and we end up in loss or no profits even if our outlook (Bearish, Bullish or Neutral outlook) is successful.
Always remember that whole point of Stock market is to “Buy low and then Sell high or Sell high and then Buy low”
Say if a Under valued stock or index with potential to go up with “high volatility or VIX or IV” which means high option prices then it may be wise to sell Put or Put Spreads instead of buying Calls or Call spreads where if volatility falls then price of premiums go down with Vega / IV of options which does not give any profits at all. Always think of above point in Stock market is to “Buy low and then Sell high or Sell high and then Buy low”