Specifications and Settlement
Weekly options expire in approximately one week and have contract specifications identical to those of regularly listed monthly expiration options. The exercise style for weekly options is the same as for standard options on that product. Equity and ETF options are physically settled, with index options being cash-settled.
Options exchanges can list up to five consecutive weekly expirations for selected securities. Weekly options usually expire 4-5 weeks from the time that they are listed, with the last trading day on a following Friday. No weeklies expire during expiration week for standard options (third Friday of each month). Weeklies are not available for all option classes.
A full list of weekly options on U.S. equity option exchanges can be found here
Users of non-weekly US equity options may be familiar with settlement issues, although many investors may be keen to avoid exercise. Some weekly index options have a last trading day of Thursday and will be cash settled on Friday morning (AM). Others may have a last trading day of Friday and will settle in the afternoon (PM). Please visit the website of the exchange which is trading the product for exact contract specifications. AM settlement may add the risk of overnight movement of the underlying instrument before the settlement price is known, whereas PM settlement allows for trading right up to the close of trading. Nevertheless, a short option position still has unknown assignment risk until the clearing firm holding the trade provides notification.
See more specification details here
. Typical Strategies
Because of the proximity of expiration, buyers are attracted to the low relative cost of hedging or positioning, albeit for a short period of time. Sellers are interested because of the rapid time decay which occurs in the last days of an expiring weekly option.
Short duration makes the "Greek" measures of delta, gamma and theta very important in pricing and risk analysis. Delta measures the sensitivity of the option price to a movement of the underlying’s price. Gamma measures the expected change in the delta to a change in the underlying stock price. Theta measures the expected change in option value with the passage of time (time decay).
Harvesting time decay can offer opportunity for investors. Covered calls and cash secured puts are two possible strategies. Iron condors are another. One of the main threats to benefitting from time decay is a rise in volatility. High priced stock with high volatility may offer better returns – but also a higher risk. A weekly option is a short-term strategy, with little time for adjustment. Cash Secured Put
In this example, the investor writes an at-the-money put, anticipating little change in the underlying price. He hopes that volatility stays the same or declines, allowing him to benefit from time decay. The downside risk is that either the underlying stock price declines and the short put is assigned and/or volatility picks up and the option increases in value. Because of the possibility of either of these events, we have selected a cash secured put, ensuring that the investor has enough funds to buy the stock if the short put is assigned. If the option is not assigned, then the investor is left holding cash. Remember also that the short put position could be exercised at any time.