Strategies with Weeklys Options

Transcription

1 SM Strategies with Weeklys Options

2 CBOE Disclaimer Options involve risks and are not suitable for all investors. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies may be obtained by contacting your broker, by calling OPTIONS, or from The Options Clearing Corporation at In order to simplify the computations, commissions, fees, margin interest and taxes have not been included in the examples used in this presentation. These costs will impact the outcome of all transactions and must be considered prior to entering into any transactions. Multiple leg strategies involve multiple commission charges. Investors should consult their tax advisor about any potential tax consequences. The information in this presentation, including any strategies discussed, is strictly for illustrative and educational purposes only and is not to be construed as an endorsement, recommendation, or solicitation to buy or sell securities. Supporting documentation for any claims, comparisons, statistics, or other data in this presentation is available by calling OPTIONS, or contacting CBOE at CBOE, Chicago Board Options Exchange, OEX and XEO are registered trademarks and SPX, The Options Institute and Weeklys are service marks of Chicago Board Options Exchange, Incorporated (CBOE). All other trademarks and service marks are the property of their respective owners. CBOE is not affiliated with Interactive Brokers. Copyright 2012 Chicago Board Options Exchange, Incorporated. All rights reserved. 2

3 Outline Weeklys Options Description Recent List Time Value of Options Time Decay Review Weeklys and Time Strategies Covered Call Long Trade Spread Trade Summary 3

4 Weeklys Options Contract Specifications Begin trading on Thursday for the following Friday expiration Currently trading on index, ETF, and equities Parameters for settlement and expiration are the same as standard options Have a very short life so suited for shorter term strategies 4

5 Weeklys Options Advantages For buyers potentially lower premiums For sellers may have lower spread costs For both time decay benefits More flexibility in timing of trades 5

6 Weeklys Options Disadvantages Limited time (7 trading days maximum) For buyers big short term price move needed to profit from out-of-the-money position For sellers high risk associated with a quick large price move 6

7 Weeklys Options How do I find them? New list of potential weeklys comes out on Wednesday afternoon. 7

8 Weeklys Options Indexes August 10 th Expiration OEX XEO SPX DJX NDX RUT TM TM TM S&P 100 Index (American style) S&P 100 Index (European style) TM S&P 500 Index Dow Jones Industrial Average TM Nasdaq-100 Index TM Russell 2000 Index 8

9 Weeklys Options ETFs & ETNs August 10 th Expiration AGQ FXE SLV USO EEM FXI SPY UNG EFA GLD SSO VXX EWJ GDX TBT XLB EWZ IWM TLT XLE FAS QQQ TNA XLF FAZ SDS TZA XME 9

10 Weeklys Options Stocks August 10 th Expiration AA APA BIDU COP F GPS INTC AAPL APC BMY CSCO FB GRPN IOC ABX APKT BP CREE FCX GS ISRG ACN APOL BRKB CRM FFIV HAL JCP AET ARNA C CVX FMCN HD JNJ AIG AXP CAT DE FSLR HL JOY AMRN BA CF DELL GE HLF JPM AMZN BAC CHK DMND GM HPQ KO ANF BAX CLF DNDN GMCR IBM LNKD ANR BBBY CMG EMC GOOG IDCC LO 10

11 Weeklys Options Stocks August 10 th Expiration LULU MS OXY RIMM T WLT LVS MSFT PBR S TXN WMB MA MU PCLN SBUX UNH WMT MCD NEM PCX SHLD UNP WYNN MCP NFLX PFE SINA UTX X MGM NKE PG SLB V XOM MMM NOK POT SLW VHC YHOO MMR NTAP QCOM SNDK VZ YOKU MOS NVDA QCOR STX WDC ZNGA MRVL ORCL RIG SU WFC 11

12 Time Value of Options 30 Day Time Value Behavior ITM ATM OTM Life of a Weeklys Option 12

13 Time Value of Options 7 Day Time Value Behavior 0.80 ITM 0.60 ATM OTM

14 Time Value of Options XYZ At-The-Money Time Decay Days to Expiration Stock Price XYZ 40 Call XYZ 40 Put

15 Time Value of Options XYZ In-The-Money Time Decay Days to Expiration Stock Price XYZ 39 Call XYZ 41 Put

16 Time Value of Options Summary At the money and near at the money options experience significant loss of time value in last few days Securities with weekly options should always have an option expiring in the next few days 16

17 Covered Call Quick Review Long stock Short call option on stock Short call is obligation to sell owned stock Example Long Short 1 XYZ Jul

18 Covered Call Trading Scenario Today is Thursday July 12 August expiration is Friday August 17 (27 trading days) Long Believe XYZ has significant resistance at Considering a Covered Call using the XYZ Aug

19 Covered Call Trade Sell 1 XYZ Aug Covered Call Position Long Short 1 XYZ Aug

20 Covered Call Long Short 1 XYZ XYZ Stock P/L (4.80) (2.30) XYZ 35 Call (2.50) (5.00) Option Income Total P/L (3.55) (1.05)

21 Covered Call Long Short 1 XYZ

22 Covered Call Long Short 1 XYZ Aug Week Date Days to Expiration XYZ Price Aug 35 Call Change 0 7/ / (0.15) 2 7/ (0.30) 3 8/ (0.50) 4 8/ (0.75) 5 8/ (1.25) 22

23 Covered Call Sell 1 XYZ Aug OR Sell 1 XYZ Jul 20 th Sell 1 XYZ Jul 27 th Sell 1 XYZ Aug 3 rd Sell 1 XYZ Aug 10 th Sell 1 XYZ Aug 17 th or 2.60? 23

24 Covered Call Single Transaction Advantage Lower commission costs Less active strategy with only one transaction Know income for whole time period when initiating strategy 24

25 Covered Call Weekly Rolling Transaction Advantages Can discontinue strategy by not rolling to a new week May change strike prices based on stock movement Potentially more profitable Can avoid periods where early exercise is possible 25

26 Long Trade Monday July 30 th (around noon) Weekly expiration is August 3 rd BA trading at We are bullish on BA for the week 26

27 Long Trade Weekly Calls Bid Ask Time Value Call Call Call Call Call Buy 1 BA

28 Long Trade August 3 rd Payoff BA at Expiration Call Premium P/L (7.40) (7.40) (7.40) (7.40) (7.40) (7.40) (7.40) (7.40) (7.40) (4.90) (2.40)

29 Long Trade August 3 rd Payoff Max Loss Break Even

30 Spread Trade Monday July 30 th (around noon) Weekly expiration is August 3 rd BA trading at We are neutral to bullish on BA for the week 30

31 Spread Trade Weekly Calls Bid Ask Time Value Call Call Call Call Call Buy 1 BA Sell 1 BA

32 Spread Trade August 3 rd Payoff BA at Expiration 70 Call 75 Call Premium P/L (2.50) (5.00) (4.20) (4.20) (4.20) (4.20) (4.20) (4.20) (4.20) (4.20) (4.20) (4.20) (1.70)

33 Spread Trade August 3 rd Payoff 2.50 Break Even Max Loss

34 Spread Trade August 17 th Calls Bid Ask Time Value Call Call Call Call Call Buy 1 BA Sell 1 BA

35 Spread Trade August 17 th Payoff BA at Expiration 70 Call 75 Call Premium P/L (2.50) (5.00) (4.05) (4.05) (4.05) (4.05) (4.05) (4.05) (4.05) (4.05) (4.05) (4.05) (1.55)

36 Spread Trade August 17 th Payoff 2.50 Break Even Max Loss

37 Spread Trade August 3 rd vs. August 17 th Aug 3rd Aug 17th Max Gain Max Loss Trading Day 4 1/2 14 1/ for 10 More Days? 37

38 Q&A / Contact Questions? rhoads@cboe.com 38