By Angela Moon
NEW YORK, July 1 (Reuters) - It's been less than a week since their launch, but traders have already become big fans of one-week options on individual stocks.
The Chicago Board Options Exchange, the largest U.S. options market, introduced one-week options, or weeklys, on four individual equities -- Bank of America, Apple and Citigroup and U.S-listed shares of BP -- on June 25.
Weeklys are options listed with approximately one week to expiration, different from traditional options that have a life of months or years before expiration.
Because of their short duration, weekly options can be cheaper to use, and the flexibility allows investors to better take advantage of market events such as earnings, government reports or Federal Reserve announcements.
'I'm a big fan of the weeklys. They can be a great way to speculate on the short-term direction of the underlying stocks,' said Steve Place, owner of web information site InvestingWithOptions.com.'
'The only problem is, the theta (time decay) is much greater as expiration is always around the corner. But you can actually take advantage of that and create slightly more complex strategies that capitalize on the high theta.'
Some say the shorter-term options may not be for everyone.
'The weeklys are popular among investors who know what they are doing. As long as you understand that this could be something or nothing very quickly, that this is a more purified bet, it is a great way to focus on short-term movements in the market,' said Jon Najarian, founder of web information site optionMonster.com.
'But I would be surprised if their volume grew (to) more than 20 percent of regular options,' he added.
For example, open interest for Apple weekly options at strike prices between $220 and $270, which expire on Friday, average at 3,000 contracts, according to Najarian. That's far outweighed by regular options on Apple, which expire in 16 trading days. They had an average open interest of about 25,000 contracts for those strikes.
Citigroup open interest for one-week options amounted to about a 10th of the open interest on regular options.
Except for the expiration date, these short-term options generally have the same contract specifications and offer the same continuous, two-sided quotes as standard options.
Starting July 1, the CBOE expanded the trading of one-week options by one day to allow participants to more easily roll their positions from one expiration to another. Any new weekly options from now will start trading on a Thursday and expire the following Friday.
CBOE has offered a number of cash-settled index weeklys for several years such as the S&P 500 index weeklys, Mini-SPX weeklys, S&P 100 weeklys and Euro S&P 100 Weeklys.
Average daily volume for weekly index options in May totaled 55,373 contracts compared to an average of 17,709 contracts traded per day in May 2009 and an average of 6,673 contracts traded daily in May 2008, the CBOE said. By contrast, daily volume for regular index options averaged 3.46 million contracts in May 2010, according to CBOE.
Weeklys on exchange-traded funds include the Standard & Poor's Depositary Receipts, the Nasdaq-100 Index Tracking Stock, SPDR Gold shares, Financial Sector SPDR and the iShares Russell 2000 Index Fund .
(Editing by Leslie Adler) Keywords: US OPTIONS/WEEKLY (angela.moon@thomsonreuters.com;+1 646 223 5685; Reuters Messaging:angela.moon.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, July 1 (Reuters) - It's been less than a week since their launch, but traders have already become big fans of one-week options on individual stocks.
The Chicago Board Options Exchange, the largest U.S. options market, introduced one-week options, or weeklys, on four individual equities -- Bank of America, Apple and Citigroup and U.S-listed shares of BP -- on June 25.
Weeklys are options listed with approximately one week to expiration, different from traditional options that have a life of months or years before expiration.
Because of their short duration, weekly options can be cheaper to use, and the flexibility allows investors to better take advantage of market events such as earnings, government reports or Federal Reserve announcements.
'I'm a big fan of the weeklys. They can be a great way to speculate on the short-term direction of the underlying stocks,' said Steve Place, owner of web information site InvestingWithOptions.com.'
'The only problem is, the theta (time decay) is much greater as expiration is always around the corner. But you can actually take advantage of that and create slightly more complex strategies that capitalize on the high theta.'
Some say the shorter-term options may not be for everyone.
'The weeklys are popular among investors who know what they are doing. As long as you understand that this could be something or nothing very quickly, that this is a more purified bet, it is a great way to focus on short-term movements in the market,' said Jon Najarian, founder of web information site optionMonster.com.
'But I would be surprised if their volume grew (to) more than 20 percent of regular options,' he added.
For example, open interest for Apple weekly options at strike prices between $220 and $270, which expire on Friday, average at 3,000 contracts, according to Najarian. That's far outweighed by regular options on Apple, which expire in 16 trading days. They had an average open interest of about 25,000 contracts for those strikes.
Citigroup open interest for one-week options amounted to about a 10th of the open interest on regular options.
Except for the expiration date, these short-term options generally have the same contract specifications and offer the same continuous, two-sided quotes as standard options.
Starting July 1, the CBOE expanded the trading of one-week options by one day to allow participants to more easily roll their positions from one expiration to another. Any new weekly options from now will start trading on a Thursday and expire the following Friday.
CBOE has offered a number of cash-settled index weeklys for several years such as the S&P 500 index weeklys, Mini-SPX weeklys, S&P 100 weeklys and Euro S&P 100 Weeklys.
Average daily volume for weekly index options in May totaled 55,373 contracts compared to an average of 17,709 contracts traded per day in May 2009 and an average of 6,673 contracts traded daily in May 2008, the CBOE said. By contrast, daily volume for regular index options averaged 3.46 million contracts in May 2010, according to CBOE.
Weeklys on exchange-traded funds include the Standard & Poor's Depositary Receipts, the Nasdaq-100 Index Tracking Stock, SPDR Gold shares, Financial Sector SPDR and the iShares Russell 2000 Index Fund .
(Editing by Leslie Adler) Keywords: US OPTIONS/WEEKLY (angela.moon@thomsonreuters.com;+1 646 223 5685; Reuters Messaging:angela.moon.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.