Trading Weekly Options on Friday (2024)

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THE SIGNIFICANCE OF FRIDAY IN TRADING

In addition to being the last day of the week for the stockmarket, Friday is also the day on which options expire. When it comes to weeklyoptions, if the Friday in question is the first, second, fourth or fifth Fridayof any given month, then it is an expiration day for these options. The thirdFriday of each month is the day on which monthly options expire, and therefore,there are no weekly options expiring on this day.

HOW DO WE DEFINE TRADING?

At Weekly Options USA, we consider that the purest form of tradingoptions is buying and then selling an options contract prior to expiration,ideally for a profit. There are obviously many other possibilities within thescope of trading or using options, but for the sake of this article, let’sfocus on trading weekly options in the way that our trading alert servicessuggest.

DAY TRADING WEEKLY OPTIONS ON FRIDAY

There are sometimes factors occurring on a Friday that areexpected to cause a dramatic movement in the price of a stock and likewise, itscorresponding weekly option. If one or more of these factors coincide with aweekly option expiry date, this may provide an ideal situation for executing aday trade. This means that a trader enters and then exits the trade within thesame trading day. A big advantage of buying a weekly option on the same daythat it is due to expire is that the premium is typically lower than at anyother time, due to the almost non-existent time value of the contract.

If you are planning on day trading weekly options on Friday, you needto make sure that your broker allows for doing this, as there are some brokerswith different rules about trading options on expiration day. You also need tomake sure that you are either able to watch the market so you can sell whenyour option reaches your target profit, or implement a system that ensures thecontract will be sold if it is in-the-money. If you are left holding an in-the-moneycontract at expiration, you typically become obligated to buy the underlyingshares.

WAITING TO SELL ON EXPIRATION DAY

Another way to look at the concept of trading weekly optionson Friday is to consider the scenario in which you have previously bought aweekly options contract, but are waiting until its Friday expiration date tosell it.

This may be because the price has already movedsubstantially, but is still continuing to climb, and you believe that waitinguntil Friday may give you an opportunity to realize a higher profit. This wouldmean needing a buyer who fits one of two categories.

They may intend to day trade the option and believe that itwill increase enough from the price they pay you for the contract, and theprice that they will sell it for a couple of hours later.

Alternatively, you may find a buyer who actually wants toexercise the option by buying the shares at expiration for a significantlylower than market price.

There are obviously some risks in taking this approach, asthe price may not continue to rise, or you may be unable to sell the contractat the price you want, regardless of the market value.

holding on to a losing position

If you have a weekly option contract that is nearing itsexpiration day, and has failed to increase in value, or has dropped in value,the only risk you have in holding the contract is that it will expire “out-of-the-money,”and worthless. This would mean that you have lost your premium.

By waiting until the last day with an under-performing optionscontract, you could possibly have the opportunity to make some profit, or atleast break even if the price suddenly begins to rise (or fall in the case of aput).

OTHER SCENARIOS

If you are buying and/or selling weekly options contracts ona Friday that is not the expiration date of the option in question, there arenot so many differences to trading at other times.

You might be buying and/or selling a weekly options contractthat expires the following week, in which case, your trade would only beinfluenced by the factors that can affect all market activity on a Friday.

One consideration is a well–known stock market pattern knownas the Friday Effect. According to thisarticle from Berkeley, “Stock turnover is generally lower and pricemovements less pronounced on the last trading day of week.”

IN CONCLUSION

Whether you are trading weekly options on Friday, daytrading weekly options, or trading weekly options in general, the same pointsof consideration apply. Make sure that you have a solid basis for entering alltrades, and a well planned out exit strategy.