What Does it Mean to Trade Weekly Options?
Some investors who want to invest in stocks and commodities without actually buying stocks will choose to trade weekly options. Trading weekly options can be a good way to leverage your funds and to take advantage of shifts in the price of a company. However, you need to be very informed about what is involved in trading weekly options so you can make smart investments.
Weekly Options Trading -- A Quick Review
Trading options means that you buy the rights to make a purchase of a stock or commodity at a given price. For example, if something is selling for $10 right now, you could buy the option to buy it at $11 or buy the option to buy it at $9.00. If the price went down, you would make money if you bought the option to buy it at $9.00 since you could sell it for more than it was currently worth. If you buy the option to buy it at $11.00, you could sell it for a profit if the price went up to $11.00.
When you purchase the option to buy a stock or a commodity, there is an expiration date, which means your right-to-buy is only good until that date. If you buy weekly options, the expiration date is set just a week away from the time you make your purchase.
How do You make Money when You Trade Weekly Options?
You make money when you trade weekly options if the price of the stock shifts over the course of the week. For example, if you bought an option to buy a $10 stock at $11 and the stock went up to $10.50 or $11.00, then your option would be worth more than you paid for it. You wouldn't have to actually buy the stock to profit -- you could just sell the option at a higher price than you paid to buy the option.
Should I Trade Weekly Options?
Trading weekly options is an effective investment strategy if there is enough of a shift in the price of a stock over the course of a given week for you to actually make a profit on increases in the value of your options. You need to ensure that you understand market trends and have an effective strategy for making your investments profitable before you choose this type of investment.
To learn more and to decide if you should trade weekly options, visit SimplerOptions.com for tips and advice about the options market.