Stock options are a popular tool for traders to profit from the movement of underlying securities, especially when it comes to options selling. But when it comes to selling options, should you focus on weeklies or monthlies options? Which one is better?
Weeklies
Weeklies are options contracts that expire every week or for the experienced options traders, generally fall within 21 DTE. They offer traders the ability to make quick profits and take advantage of short-term market movements. With weeklies, traders can enter and exit positions quickly, allowing them to adjust their strategies as needed.
When it comes to selling stock options, weeklies can be beneficial because they allow traders to collect premiums more frequently. This can be especially helpful for traders who prefer to take a more active approach to their trading. Additionally, because weekly options have shorter expiration dates, they can offer a higher rate of return for the same amount of risk.
However, weekly options can also be riskier because they have shorter expiration dates, meaning that traders have less time to react to market movements. This can result in increased volatility and potential losses.
To summarize:
- Options contracts that expire every week or within 21 days-to-expirations (DTE)
- Allow traders to make quick profits and take advantage of short-term market movements
- Traders can enter and exit positions quickly, allowing them to adjust their strategies as needed
- Offer the ability to collect premiums more frequently, which can be helpful for traders who prefer to take a more active approach to their trading
- Can be riskier due to their shorter expiration dates, meaning that traders have less time to react to market movements, resulting in increased volatility and potential losses
- Higher probability of pin risk and gamma risk
- Potential early assignment if in-the-money (ITM)
Monthlies:
Monthly options, as their name suggests, expire on a monthly basis. They offer traders a longer timeframe to manage their positions and adjust their strategies. With monthly options, traders can take a more passive approach to their trading, collecting premiums on a monthly basis.
When it comes to selling stock options, monthly options can be beneficial because they offer more time to adjust positions in response to market movements. This can result in decreased volatility and a lower risk of potential losses. Additionally, because monthly options have longer expiration dates, they can offer a lower rate of return for the same amount of risk.
However, monthly options can also be less flexible, as traders have less frequent opportunities to collect premiums. This can be frustrating for traders who prefer to take a more active approach to their trading.
To summarize:
- Options contracts that expire on a monthly basis or greater than 21 days-to-expirations (DTE)
- Offer traders a longer timeframe to manage their positions and adjust their strategies
- Allow traders to take a more passive approach to their trading, collecting premiums on a monthly basis
- Can offer a lower rate of return for the same amount of risk due to their longer expiration dates
- May be less flexible as traders have less frequent opportunities to collect premiums, frustrating those who prefer an active approach to trading
- May be subject to more significant changes in market conditions, resulting in increased volatility and potential losses
Final Thought
So, which is better – weeklies or monthlies? Ultimately, the decision will depend on your individual preferences and trading style. If you prefer to take a more active approach to your trading and collect premiums more frequently, weeklies may be the way to go. However, if you prefer a more passive approach to your trading and want to manage your positions over a longer timeframe, monthly options may be a better fit.
In conclusion, when it comes to selling stock options, both weeklies and monthlies have their pros and cons. It’s important to carefully consider your individual trading goals and risk tolerance before making a decision.