Monthly Or Weekly Options: Which Is Better? (Ep. 08)

Trading with Insight | Stock Options Swing Trading

This is another one of those questions that kind of depends on your trading style. Are you going to be mostly buying or selling options? Do you prefer more conservative trades or more aggressive trades? For me, the answer really boils down to four things.

First is the Frequency. How often are these options available to trade? Well, monthly options are available to trade once per month. These options expire on the 3rd Friday of every single month. On the other hand, weeklies are available to trade every week and expire every Friday. (There are some tickers that have non-standard expiration days, so be mindful of them.) So weekly options are more readily available, giving you the opportunity to place more trades more often. So, for frequency, I'd say weekly options win!
The second thing is Options Volume. Volume is KEY when you're trading because volume gives you an idea of how liquid an option is. The more volume it has, the liquidity it has… meaning the better your chances are of getting into and out of your trades at the price you actually want. Typically, you'll find that monthly options have more volume than weekly options. So in a way, it makes trading monthly options a safer bet. So for volume, monthly options is our winner!
The third thing is Premium! How much credit can receive for selling options and what debit are you expected to pay to purchase options? Usually, you'll have higher premiums in monthly options which makes them slightly more appealing to options sellers. Weekly options usually have lower premiums which makes them a bit more attractive to options buyers. Since we mostly sell options ourselves, I'd say monthly options are the winner when it comes to premium!
And finally number four is Theta Decay or time Decay. Theta decay is essentially time eating away at your premium. Literally! As time goes by your premium decreases. And the amount of decay actually increases at an increasing rate. Your premium is just dropping faster and faster. This great for sellers looking to buy back at a lower cost, but horrible for buyers looking to sell back at a higher cost. And the closer you are to expiration, the greater the affect that time decays has on your trade. So for most options sellers, weekly options would be better because the premium drops faster. For most options buyers, monthly options would be better because the theta decay is a bit slower.
So overall, which one is really better? When you consider frequency, options volume, premium and theta decay, both monthly options and weekly options are great to trade. But in my opinion, I think monthly options are slightly more attractive to trade!
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