WeeklyOptionPalooza

• Posted by Adam Warner
• on August 8th, 2010

Forget Weekly Options, we need Daily’s!

Seriously, consider this GOOG. The open interest in the Weekly calls that expired on Friday with a strike price of 500 was 1018. The stock closed at $508.10 on Thursday, but by about 10:40, GOOG dipped below $500, before bouncing back to a near pin.

The expiring Weekly calls with a strike of 500 traded 8776 times. That’s over 8x the open interest heading into the day .And that volume also exceeded the regular August 500 call volume of 4554.

Impressive, to say the least.

And GOOG was not alone. AAPL had similar motion across the 260 strike, and volume (30,657) that dwarfed the pre-existing open interest (7072) and the volume in the regular expiration calls (18,302).

Friends, Greeks, Romans, the Rise of Weekly’s is no longer a hypothetical.

There’s all sorts of structural changes over the course of time that tweak volatility here and there. Decimalization, electronic trading, multiple listings of options, tighter strike prices, to name a few. But this has the potential to really change the face of options trading more than any of those. It’s going to redistribute volume across the time curve. It’s going to potentially both explode and crush volatility (not at the same time). It’s going to make at least one chapter in my book obsolete.

Yes, I parsed data on each individual day of the options cycle on the (correct) anecdotal observation that implied volatility tends to lag just before and after expiration. But that assumed the standard 3rd Friday Each Month cycle and the perpetual popularity of Buy Writes. The Buy Write part remains, but no reason they’ll just all roll in mass like clockwork any more now that there are so many duration choices. Not to mention the sheer impact in and of itself of active trading around a strike on optoins with 1 day remaining, something we may see now every Friday.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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