All online option contracts come with a time horizon and an expiration date which allows traders a certain timeframe where they have the right to buy or sell an underlying asset at a predetermined price. Options have weekly and monthly timeframes for their contracts, but each serves a different purpose for different types of options traders and investors. So, which contract length is best for you and your trading style and investment goals?
Our guide will highlight the debate between weekly options and monthly options and which one provides better opportunities for traders. While weekly options offer flexibility and quick returns, monthly options have advantages in stability and liquidity. We’ll get into more of these finer details in our guide as we outline the best trading opportunities for those trading with either a weekly or monthly time horizon.
Understanding Weekly and Monthly Options
Stock options are contracts which give the trader the right to buy or sell shares of an underlying security at a predetermined price by a predetermined date. Options contracts come in two flavors when it comes to time horizon: weekly options and monthly options. While the difference between these two might seem obvious, we’ll dive into what each of these contracts are and how they cater to traders with different strategies in mind.
What Are Weekly Options?
Weekly options are short-term contracts that expire every week, usually on Fridays, and they’re available for major indices and ETFs. They have a shelf life of eight days, being issued two Thursdays before the Friday they’re set to expire. Weekly options are a flexible way to trade, allowing investors to use calls when they have bullish sentiment and puts when they’re feeling bearish. They’re often used to speculate on short-term market news like product announcements or the release of an earnings report.
Due to the shorter duration of weekly options, they are a good way to capitalize on short-term news and come with lower premiums, but they come with a quicker time decay (theta). Traders can run into some difficulties if the stock moves unfavorably, as these trades can be difficult to revise with such a short window of time. Ultimately, they are ideal for short-term traders looking to capitalize on volatility but come with the downside of being difficult to manage from a risk standpoint.
What Are Monthly Options?
Monthly options are traditional options that expire on the third Friday of each month. They are popular with most investors for their extended timeframe and the ability to trade a variety of assets (stocks, commodities, indices, options, EFTs, etc.). Unlike weekly options, monthly options come with a steeper premium because of the longer time duration. They can be used for a wide range of strategies including covered calls, spreads, and buying calls or puts.
Better suited for swing traders and long-term strategies, monthly options have more liquidity and open interest compared to weekly options. They’re easier when it comes to entering and exiting positions quickly, plus the extended timeframe makes it easier for traders to adjust strategies when needed because the rate of erosion is much slower. At the end of the day, monthly options are a much better choice for those planning out long-term strategies.
Key Differences Between Weekly and Monthly Options
Discover the main differences between weekly and monthly options contracts in this concise compassion table. This captures the spirit of what we’re trying to get across in this options contract guide.
Feature | Weekly Options | Monthly Options |
|---|---|---|
Expiration Cycle | Every Friday | Third Friday of the Month |
Liquidity | Lower Liquidity | Higher Liquidity |
Theta Decay | Faster | Slower |
Risk and Reward | Higher Risk, Potential for Higher Returns | More Stability, Less Impact from Short-Term Fluctuations |
Ideal For | Day Traders, Scalpers, and Earnings Traders | Swing Traders, Covered Calls, and Institutional Traders |
Pros and Cons of Weekly Options
While weekly options offer traders the chance to take advantage of short-term price movements, they come with a fair share of downsides that any trader or investor should be familiar with before diving in. Discover the primary pros and cons of weekly options that you should know before trading them.
Advantages
- Faster Profits: More frequent expiration dates allow traders to capitalize on short-term price movements which come from events like earnings reports or new product announcements.
- Lower Premiums: Weekly options tend to be cheaper than monthly options, but this is only because of the shorter time horizon of eight days.
- Event-Specific Strategies: Weekly options are great for making plays during events like earnings plays, economic reports, and market catalysts.
Disadvantages
- Higher Theta Decay: Premiums erode quickly, requiring precise timing because weekly options only provide the investor eight days to turn a profit. There’s much less time for traders to adjust their strategies to accommodate for market volatility.
- More Commission Costs: One significant downside with weekly options is that frequent trading can lead to higher transaction fees which could eat into profits considerably.
- Limited Liquidity in Some Cases: Not all weekly options have strong volume and open interest which can make it difficult for traders to enter or exit these positions easily or quickly.
Pros and Cons of Monthly Options
While monthly options offer a longer time horizon than weekly options, traders will find that these investments, too, have their drawbacks especially when it comes to trade costs and limited opportunities for short-term volatility plays. Let’s get into the pros and cons of trading monthly option contracts.
Advantages
- More Liquidity & Tighter Spreads: Due to lower slippage, monthly options are much easier to enter and exit quickly. This leads to much better trade execution.
- Better for Long-Term Strategies: Monthly strategies are suitable for long-term plays like covered calls, LEAPS, and swing trades. The longer time horizon makes these strategies possible for investors with longer-term goals.
- More Predictable Theta Decay: With slower premium decay compared to weeklies, monthly options contracts are easier to predict when it comes to the theta decay factor. It helps for investors who are looking to make the best plays to lock in a profit.
Disadvantages
- Higher Initial Cost: Monthly options generally have higher premiums due to the longer time horizon they come with. By comparison, weekly contracts have lower premiums due to only covering eight days.
- Less Flexibility for Quick Trades: Traders must wait longer for expiration cycles with monthly contracts. The longer time horizon limits your ability to capitalize on short-term price movements. When the markets experience rapid fluctuations, monthly options might not fully capture those changes as quickly as short-term contracts like weekly options.
- Limited Opportunities for Short-Term Volatility Plays: Monthlies are not ideal for capturing quick market reactions. They aren’t the best choice for taking advantage of short-term price movements like you’d find with weeklies. Monthly contracts are better suited for long-term plays.
Which One Offers Better Opportunities?
Do monthly or weekly options contracts offer better opportunities for traders? The answer to this question lies in the kind of trader you are and what your ultimate goals might be for trading online options.
For Day Traders & Scalpers
To be clear, day traders are those who buy and sell securities within a single trading day to profit from price fluctuations and scalpers are short-term traders who enter and exit trades in a short period to profit from small price changes. For traders who typically do all their business in a single day, day traders and scalpers will benefit from cheaper premiums which help to keep their operational overhead low.
For both day traders and scalpers, they might prefer using weekly options as they provide more trading opportunities and faster gains. More frequent expiration dates allow these traders to capitalize on short-term price movements that surround events like earnings reports or new product announcements. While they are high-risk trades, they are ideal for those who thrive on short-term moves.
For Swing Traders & Investors
Swing traders buy and sell assets over a short period to profit from short-term fluctuations with a larger trend, while investors have the right to buy or sell an asset at a predetermined price within a specific timeframe.
For these types of traders and investors, monthly options are the ticket—they are more stable and offer better liquidity. You have more time for your trade to work out, and they lose value much slower than weekly options. This gives investors the ability to follow trends and to successfully execute long-term trading techniques. They work well for strategies like covered calls, credit spreads, and long-term hedging.
For Earnings & Event-Driven Traders
Just for a refresher, traders who conduct their business around events are looking to take advantage of price fluctuations around major announcements like earnings or new product releases.
Weekly options are the best choice for traders who usually operate around big announcements and events as these contacts allow traders to capitalize on short-term market reactions. However, implied volatility (IV) crush post-event can be a risk factor—it occurs when options’ prices drop significantly following the event, which can make it difficult for traders to exit positions they hold.
Trading Strategies for Weekly vs. Monthly Options
Now that you’ve figured out if weekly or monthly options contracts are the best fit for your trading style, what kind of strategies should you begin using considering the current time horizon for your options contract? For your convenience, we’ve outlined the best strategies for weekly options and the best trading technique for those holding monthly contracts. Find the best moves and plays that are best suited to your trading goals and preferred trading style.
Best Strategies for Weekly Options
- Straddles & Strangles: Both of these are great for earnings plays where traders might have an idea of the magnitude of the move but they’re uncertain of the direction. Weekly options are a good choice for both straddles and strangles which are centered around events and other significant news.
- Iron Condors & Credit Spreads: To collect rapid premium decay, traders can use iron condors and credit spreads to great effect. Each is good for managing risk while also forgoing a limited amount of potential profit.
- Short-Term Momentum Trades: This move is where traders benefit from short-term price movements to maximize profits and they are best realized with weekly options which have a much smaller time horizon, yet allow traders to fully capture changes when the markets experience rapid fluctuations.
Best Strategies for Monthly Options
- Covered Calls & Cash-Secured Puts: Monthly options have higher premiums because of the long time horizon which allow traders to buy calls or puts to speculate on price movements. This includes using covered calls or cash-secured puts to generate income (via collecting a premium) from these sales.
- Long-Term Vertical Spreads: Because long-term vertical spreads use a longer expiration date, this makes them a good strategy to use with monthly options which have a longer time horizon. These spreads become more profitable under a longer timeframe.
- Hedging with Protective Puts: Finding a time horizon that aligns with the time period where you anticipate the most downside risk for your stock position is the key to succeeding with using the protective put as a hedge. It could take a few months or even a year, so it’s better to use monthly options for these plays instead of weekly contracts.
Which One Should You Choose?
There is no one-size-fits-all answer—it depends on your trading style, risk tolerance, and strategy. If you prefer fast-paced, high-risk trades, weekly options offer more flexibility. If you seek stability, liquidity, and longer-term opportunities, monthly options are more reliable. Consider combining both in your trading approach for diversification purposes.
- Weekly Options: Best for swing traders and investors (use short momentum trades, straddles, strangles, iron condors, and credit spreads)
- Monthly Options: Best for day traders, scalpers, earnings traders, and event-driven traders (use covered calls, cash-secured outs, hedging with protective puts, and long-term vertical spreads)
We give a pretty clear breakdown of which option contract works best for certain traders and train styles, so we’d encourage you to reference those sections for additional details. If you want to learn how to maximize profits with options, we’d recommend checking out our Options Trading Strategies Guide for expert insights!
