Weekly Strategy Discussion

The Weekly Strategy Discussion is designed to assist individuals in learning how options work and in understanding various options strategies. Options involve risk and are not suitable for all investors. The strategies discussed are for educational and illustrative purposes only, and should not be construed as an endorsement, recommendation or solicitation to buy or sell securities. Commissions, taxes and transaction costs are not included. Please contact a tax advisor for the tax implications involved in these strategies.

Time Spread with Weekly Options

Example:                 XYZ stock is trading at $53.50 

Outlook:                  You are neutral on XYZ stock over the next week.

Possible strategy:    A time spread to take advantage of short term time decay.                              

                                  Sell one Weekly 54 strike call               $.90

                                  Buy one June 54 strike call                 $3.25

                                                                           Net Debit $2.35  

At Expiration:

  • Maximum Profit = Long call value at weekly expiration - Net Debit
  • Maximum Loss = Net Debit paid for spread

In Summary: Time decay accelerates as expiration approaches. This spread will be most profitable if XYZ stabilizes to the at-the-money strike at the weekly expiration.  Maximum profit depends on the value of the long call at near term expiration.  Maximum loss is equal to the debit paid for the spread.        

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