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What are Weekly Options?

What are Weekly Options?

Weekly options refer to those option contracts that expire, well, in a week. Except for the reduced time to expiry, all the other aspects remain the same as that for typical (monthly) options contracts. All strategies that traders implement over monthly options can be applied for weekly options. Since the time to expiry is lesser as compared to the longer duration monthly contracts the premiums are also lower. This is one important factor why weekly options have become very popular with traders who prefer to buy options and those who trade options on expiry day.

These are short term contracts available for a duration of 8 days or less. In India they are only available for indices like Nifty 50, Bank Nifty, Fin Nifty and Midcap Select Nifty . 

What are options?

Options are a type of derivatives contract that derives their value from the underlying security. They enable the buyer (holder or owner) of the contract to buy or sell the underlying asset. The right to buy or sell is without any obligation. The seller (or writer) of the option is, however, obligated to buy or sell, should the buyer exercise his or her right. 

There are 2 types of options 

  1. Call option: A call option is a derivatives contract that allows the buyer to benefit from an up move in the price of the underlying.
  2. Put option: A put option is a derivatives contract that allows the buyer to benefit from a down move in the price of the underlying.

Underlying

Weekly expiry options in India are currently only available on Indices and not on stocks.

Weekly options list:

  • Nifty50 options

Nifty50 options are based on the Nifty50 index which is a benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange. Nifty50 monthly option contracts expire on the last Thursday of the expiry month and weekly contracts expire on every Thursday of the week. If last Thursday is a trading holiday, the contracts expire on the previous trading day. The lot size of Nifty50 is 50.

  • BANKNIFTY options

BANKNIFTY options are option contracts based on the Bank Nifty Index which represents the 12 most liquid and large capitalised stocks from the banking sector which trade on the National Stock Exchange (NSE). Bank Nifty monthly options expire on the last Thursday of the expiry month and weekly options contracts expire on every Thursday of the week. If last Thursday is a trading holiday, the contracts expire on the previous trading day.The lot size of Bank Nifty is 25.

  • FINNIFTY options

FINNIFTY option contracts are based on the FINNIFTY Index, which tracks how various financial services including banks, NBFCs, housing finance, insurance, etc. perform in India. FINNIFTY monthly options expire on the last Tuesday of the expiry month and weekly options contracts expire on every Tuesday of the week. If last Tuesday is a trading holiday, the contracts expire on the previous trading day.The lot size of FINNIFTY is 40.

  • MIDCPNIFTY options

MIDCPNIFTY options are option contracts based on the Nifty Midcap Select index, which aims to track the performance of a focused portfolio of 25 stocks within the Nifty Midcap 150 index. MIDCPNIFTY monthly options expire Tuesday of the expiry month and weekly options contracts expire on every Tuesday of the week. If last Tuesday is a trading holiday, the contracts expire on the previous trading day. The lot size of MIDCPNIFTY is 75.

Characteristics of Weekly Options

  • Option Type: Weekly options contracts are European styled which means that can be exercised only on expiry.
  • Premium: Premium refers to the amount paid by option buyers to option sellers in order to buy the contract.
  • Lot size: Weekly options are traded in a fixed number of contracts and it varies as per the underlying.
  • Cash Settlement: All positions in the weekly options will be cash settled on expiry.
  • Settlement procedure: All settlements will occur on the next working day of the expiry date using the T+1 trading cycle.

Benefits of Weekly options trading

  • Lower ticket size: The ticket size of weekly options is low. This is because the premiums are lower due to less time to expiry. Thus, in order to buy weekly options, traders have to pay a smaller option premium as compared to the monthly options.
  • Selling weekly options for income: Selling weekly options for the premium gives the trader room to earn profit as time value decreases quicker as compared to monthly options. 

Drawbacks of Weekly options trading 

  • Time to expiry: As the time to expiry is less, if the underlying doesn't move in the desired direction the trader will incur a loss.
  • Liquidity: Best weekly options to trade are those which are liquid. But not necessarily the same liquidity will be available on all strike prices. Weekly options are relatively new in underlying such as Nifty Financial Services Index and Nifty Midcap Select Index, hence traders must choose contracts carefully.

 Summary:

Sr.no Underlying Symbol Weekly expiry Monthly expiry Lot size
1 Nifty50 NIFTY Thursday Last Thursday of the expiry month 50
2 Nifty Bank BANKNIFTY Thursday Last Thursday of the expiry month 25
3 Nifty Financial Services FINNIFTY Tuesday Last Tuesday of the expiry month 40
4 Nifty Midcap Select MIDCPNIFTY Tuesday Last Tuesday of the expiry month 75
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