More Strategies; Less Time

It was in May 2016 when NSE introduced weekly options on Bank Nifty. Post that we saw increased interest in Banking names and so in Bank Nifty options also. Early this year this was expanded to Nifty. Weekly options on Nifty has seen very good response. Encouraged by this BSE is looking to introduce weekly options on the stocks available in the derivatives segment.

This can bring about lot of interest, considering a week may not be too long a period to take risk on a stock. So option writers may come in.

The parameters viz. Underlying, Contract Multiplier, Tick size, Price Quotation, Trading Hours, Strike price Intervals of the Weekly Options will remain exactly the same as that of monthly Options. Weekly Options differ mainly in terms of maturity period. Currently monthly Options have maturity of 1 month, 2 months or 3 months. As 1 month options expire, another options series get generated. In case of weekly Options, the maturity will range from 1 week to 5 weeks. The weekly series contracts will expire on Thursday of each week. When the first week series for an underlying for the near week expires, a new weekly option series is generated.

So, what are the benefits of weekly options? Seemingly they carry similar benefits as Nifty and Bank Nifty weekly options. To list a few, they would be:

• Weekly Options will command lower premium due to shorter maturity. Thus the Weekly Options will cost less than the Monthly Options.
• For similar capital outlay as Monthly Options, participants can take larger positions.
• Weekly Options will provide opportunity for spread trades between:
  • “One week to maturity” options and “two week to maturity” options.
  • Weekly Options and Monthly Options.
• On account of low cost, the liquidity will improve, as more participants would come in.
• Weekly Options would lead to better price discovery and improvement in market depth.
• The market participants would be able to take a short-term view in the underlying also.
• Weekly Options would provide market participants short term insurance for their short-term portfolio. This would result in better price discovery and improvement in market efficiency.
• If a strategy is doing well one can create small top ups and improve the RoI substantially.
• Writing options will become slightly more manageable as one can take weekly view and create positions. The value at risk automatically comes down. Though this down mean that one takes away the risk guard.
• As compared to intraday trading where it is extremely stressful at times and one tends to miss the big moves this a better option and not too much of an extra investment. So, it is good balance between holding options till expiry and playing intraday.

Clearly, weekly options open doors to multiple strategies within stocks, with lesser investment in time value.

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Happy Trading.

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