The options wheel strategy is a popular approach adopted by traders and investors to generate consistent income from their investments. This strategy combines, mainly, both selling cash-secured puts and covered calls. The debate between selling weekly Vs monthly options is one of the most asked subjects.
Recently, someone sent me this question via my contact form.
“For the wheel options strategy, do you prefer, monthly or weekly put options? It seems like you can make more premium selling weekly’s? Wondering the difference between weekly and monthly options, and which is best for the options wheel strategy?”
Weekly options typically offer smaller dollar premiums but allow for more frequent compounding of returns. They are for those who prefer their income streams like their favorite coffee – small, frequent, and with a hint of excitement.
A friend recently said to me: ‘Why wait a month when you can enjoy trading options every week?
Weekly options then tend to benefit the more active stock option traders.
On the other hand, monthly options deliver more substantial premiums and entail a lower maintenance time commitment.
Monthly options generally suit those who want to trade at a pace that leaves room for a round of golf or two.
It’s perhaps more for the less active, long-term investors who prefer to minimise time spent babysitting their trades while still earning a consistent income stream.
When deciding between weekly and monthly options to implement the options wheel strategy, users ought to evaluate their investment goals, risk tolerance, and time commitment.
Read Also: Best Stocks For The Option Wheel Strategy
Both approaches have distinct advantages and drawbacks, making it vital for traders to carefully assess their individual needs and preferences before choosing an option expiration timeframe that aligns with their overall strategy and personality.
Bottom line – The Options Wheel Strategy, when implemented properly, generates consistent profits by selling covered calls and cash-secured puts; however, it is essential to understand the nuances of weekly vs monthly options to determine which time frame best suits one’s trading style and risk tolerance. On this page, you will discover the advantages and disadvantages of both options, helping you make an informed decision about which wheel strategy returns are most suitable for your financial goals.
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In 2005, the Chicago Board of Options Exchange (CBOE) created weekly short-term options with one week until expiration. This allowed investors to target training strategies around market news and events.
Since this time, trading weekly options has proliferated making up around 20% of daily options volume.
Weekly options expire every Friday. Whereas monthly options expire on the third Friday of the month.
What Are The Benefits Of Weekly Options?
Higher Annualized Returns Selling Weekly Options:
Typically, selling weekly options allows you to collect option premiums at a much higher annualized rate when compared to selling cash-secured puts and covered calls on a monthly timeframe. This means your options portfolio can potentially grow much faster.
Picture it as your financial fitness tracker, keeping tabs on whether your money is sprinting towards financial freedom or just taking a leisurely stroll in the park.
Options Wheel Tracker Sheet
Greater Flexibility With Weekly Options:
Weekly options provide more flexibility in terms of choosing different scenarios, situations, and trades. You have the opportunity to adjust your strategy more frequently.
Faster Time Decay On Weekly Options:
Due to their shorter duration, weekly options experience faster time decay. This can work in your favor as an option seller.
No Weekend Exposure (If all goes to plan):
Weekly options expire every Friday. This means you won’t have open positions over the weekend unless you find yourself in-the-money or having to roll a position that has gone against you.
This can be helpful if you prefer not to be exposed to unanticipated news events during the weekend when the market is closed.
What Are The Disadvantages Of Weekly Options?
Higher Trading Frequency With Weekly Options Vs Monthly
Trading weekly options may require a significantly higher trading frequency compared to monthly options.
If you have to rotate positions every week, it can lead to a substantial increase in the number of your trades.
This can be overwhelming and time-consuming.
I find trading weekly set-ups more time-intensive than when trading monthlies.
Due to the higher number of trades associated with weekly options, commissions can eat up a larger portion of your total returns.
This can reduce your overall profitability.
When trading more monthly options in the past I would do around 25-30 trades per month. However, when selling weekly options this number has grown to over 70 trades per month and my commission fees started to stack up.
If you are going to trade weekly options you should consider using an option broker with cheap commissions. Examples include Interactive Brokers or TastyWorks for more UK / European option sellers.
Navigating The Downside:
Weekly options provide less initial downside protection compared to monthly options.
Since weekly options have a shorter duration, they offer less time for the underlying asset to recover if it moves against you.
So in some instances, you might have to roll the position out further in time until the stock recovers.
Constantly Finding New Opportunities Each Week:
Selling weekly options on the same underlying asset every week can be challenging.
It can also be difficult to find a steady stream of high-probability trades week in and week out.
If you have a full-time job and a family this can be a limiting factor.
Don’t get me wrong, I can get wrapped up in charts and reading about stocks as I love it. And when I am not trading options, I am thinking about them. Heck, I even dream about options.
But, I do have parental responsibilities to take care of as well.
So, with that said, you need to find a balance with your time. Finding high-probability options opportunities each week can be time-consuming.
More Difficult To Run:
Constantly trading weekly options can involve complex administration, including tracking profit and loss for numerous positions, determining when to close them, and deciding what to replace them with.
This can be a logistical challenge but some traders thrive on it.
So, you need to find a balance between your financial goals and your preferred level of involvement in options trading.
Higher Risk of Missing Out on Bigger Premium Payments:
While shorter-dated options have higher annualized yields, they also come with lower overall premium payments. This means that by sticking to weekly options, you might miss out on the larger upfront payments that longer-dated options can offer.
This can be disadvantageous for the following reasons:
For instance, when selling puts, you can think of it as a synthetic stock purchase. Where your cost basis is the strike price less the premium collected. This is an important metric to track when selling put options and one that I keep an eye on all the time when running my option campaigns.
When selling weekly options, because of the less upfront premium received, it means you don’t get much of a financial buffer if the stock goes against you.
Essentially your breakeven price would be higher.
Let’s look at two examples to illustrate how the difference in premium impacts the breakeven price for a weekly and a monthly option trade. We’ll use hypothetical numbers for this demonstration.
Example 1: Weekly Option Trade
Let’s say you’re considering selling a weekly put option on ABC Nutrition Inc, which is currently trading at $50 per share. You decide to sell a weekly put option with a strike price of $48, and you receive a premium of $.30 for each contract (100 shares). The option expires in one week.
Premium Received: $.30 per share
Strike Price: $48 per share
Breakeven Price: Strike Price – Premium = $48 – $.30 = $47.7 per share
In this case, your breakeven price is $47.7 per share.
Example 2: Monthly Option Trade
Now, let’s consider a monthly option trade on the same Stock ABC Nutrition. You sell a monthly put option with a strike price of $48, but because it has a longer duration, you receive a higher premium of $2 per share. The option expires in one month.
Premium Received: $2 per share
Strike Price: $48 per share
Breakeven Price: Strike Price – Premium = $48 – $2 = $46 per share
In this scenario, your breakeven price is $46 per share.
Weekly Option Breakeven: $47.7 per share
Monthly Option Breakeven: $46 per share
So, the monthly option trade provides a lower break even price due to the higher premium received, giving you more downside protection compared to the weekly option.
Benefits of Weekly Options
Potential For higher annualised returns
Potential to grow portfolio faster
More adaptable to market news and events
Faster time decay, which works in your favour as a seller
Weekends are free (but your days might not be!)
Negatives of Weekly Options:
Higher number of trades required which can be overwhelming and more time consuming
More commissions can eat up a larger portion of total returns
Less time for the underlying asset to recover if it moves against you
Might be more challenging consistently finding high probability trades week in and week out
More screen time may be required on a daily basis
Less dollar premium collected upfront meaning there is less of a financial buffer if your trade goes against you
What Are The Advantages Of Selling Monthly Options?
Larger Premium Upfront
Monthly options typically offer a higher upfront premium compared to weekly options. This larger premium provides a more substantial financial cushion and downside protection for your position.
Less Frequent Trading:
Since monthly options have a longer duration, you don’t need to trade as frequently. This reduces the workload of constantly monitoring and managing positions, making it less time-consuming and potentially less stressful.
Lower Commission Costs:
Trading fewer monthly options means incurring lower commission costs compared to the higher trading frequency associated with weekly options. This can result in more cost-effective trading.
Comfortable Investment Approach:
If you prefer a more hands-off and less time-intensive trading approach, monthly options allow you to achieve this by reducing the need for frequent decision-making and trade adjustments.
Higher Probability Trades
Due to the longer timeframe, you can focus on setting up higher probability trades with greater confidence, as you have more time for market conditions to align with your expectations.
Closing Out In An Abbreviated TimeFrame:
Just because you are trading monthly options it doesn’t mean you have to wait the entire month to close out your positions and book your profit.
Imagine you discover a promising opportunity to sell a cash-secured put option. If the stock rises significantly in just a few days after, you have the option to close your position early, securing most of your profits in an abbreviated timeframe.
This is the holy grail for option sellers!
So, to recap, just because you are trading monthly options it doesn’t mean you have to wait the entire month to get paid.
Here’s an example of a trade I made recently in British Petroleum, ticker symbol BP.
On 7th August 2023 I sold to open 2x £4.70 September 15 cash secured put option in BP (39 days away).
For doing this trade I was paid 10.75p per share in option premium.
10.75p x 2,000 shares (UK options are 1,000 shares per 1x contract) = £215
After just 3 days I was able to close out this trade and secured half of the profits.
I paid 5p per share to close out my position in BP.
This resulted in a 1.15% total return and an annualised return of 140%.
Now, this sort of return does not happen all of the time and it’s far from repeatable on a consistent basis.
But, it does show you that even with monthly options you don’t have to stick around for the entire length of time to secure your profits.
You can simply buy to close your original position and then move on to another opportunity.
What Are The Disadvantages Of Monthly Options?
Lower Annualized Returns Selling Monthly Options:
Monthly options generally have lower annualized returns compared to weekly options.
This is because the longer duration of monthly options means you receive less % premium upfront, which can limit your potential annualized returns.
But, remember what we just discussed. We can close out our positions earlier if the trade has gone in our favour therefore juicing our annualized returns.
Reduced Time Decay Advantage:
While monthly options still benefit from time decay (theta), the advantage is not as pronounced as with weekly options.
This means that your options’ value decreases more slowly over time.
Limited Flexibility On Monthly Expirations:
The longer duration of monthly options can limit your flexibility in adjusting or exiting positions quickly in response to changing market conditions.
This can be a disadvantage when markets become volatile.
But, if Mr Market is acting up across the board, at least you will be moaning along with everyone else.
Holding positions for an entire month might lead to missed opportunities in other assets or trades with higher potential returns.
However, currently, some brokers (like mine, Interactive Brokers – IBKR) offer a 5% interest rate on the capital that is tied up, even when you’re trading in cash-secured puts.
This means that while your money is reserved for the put trade you initiated, it’s also earning interest. It’s a pretty nice bonus, I’m sure you’d agree!
Slower Learning Curve:
Trading monthly options might feel like watching paint dry, especially for beginners.
The scarce trading opportunities can leave you twiddling your thumbs, wondering where all the action went, and give you fewer chances to sharpen your trading skills.
While I didn’t find it as dull as watching grass grow, I can see the point, especially if you’re working with a smaller account size.
Positives Of Monthly Options Selling:
Higher cash premium upfront in your pocket
Less screen time needed
Less overall trades so lower commission fees
More comfortable hands off approach to enjoy other passions in life
With less trades to make, you can focus on just finding those high probability trades
Remember, with monthly options you can still close your positions early locking in profits in an abbreviated timeframe.
Negatives Of Monthly Options Selling:
❌ Lower percentage annualised returns
❌ Time decay (theta) not as pronounced as with weekly options
❌ The longer duration of monthly options can limit your flexibility in adjusting or exiting positions quickly in response to changing market conditions. This can be a disadvantage when markets become volatile.
❌ Potential for slower learning curve, especially if you are a beginner. The infrequency of trades means fewer opportunities to gain experience and refine your trading skills
❌ Holding positions for an entire month might lead to missed opportunities in other assets or trades with higher potential returns
The phrase options give you options is very true. You almost need to try multiple timeframes first to see which one you prefer the most.
The article explored the benefits, drawbacks, and nuances of weekly vs monthly options. This is so important if you are considering implementing the wheel trading strategy.
Just remember, the more you want to increase your annualized returns selling weeklies, the less protection your trade provides against a potential stock decline.
Conversely, if you prioritize having a larger safety net to shield against potential stock losses, it will likely come at the cost of reducing your potential annualized ROI.
In short, it’s not possible to maximize both aspects in options trading.
High annualized returns from weeklies versus a more robust protection against stock decreases from monthlies, are a trade-off you have to make.
The best solution then?
What I’ve found that works best for me is to choose expirations that strike a balance between annualized returns and initial or upfront protection – a “financial buffer”.
In my experience, the sweet spot for option durations is typically between 18 and 45 days. This timeframe strikes the ideal balance between maximizing the total premium earned and the speed at which you can realize those profits over time.
Usually, if there are less than 18 days left on the most recent monthly option, I will look to trade the next monthly expiration cycle.
Popular stocks have option chains that have 0DTE, 7 days, 10 days, 14 days, 30 days, and a monthly option on the third Friday of the month. Experiment and see what timeframe best works for you.
To find out what yours are, open up a low-fee brokerage account and begin your options trading journey!
Some Frequently Asked Questions
The Options Wheel strategy is an options trading strategy that involves three main components: selling cash-secured puts, buying the underlying stock if the put option is assigned, and selling covered calls against the stock position. If the stock is not called away, the trader can repeat the process by selling more cash-secured puts and, if assigned, selling covered calls again.
Simply put, a weekly option is a type of derivative contract that expires in one week, providing traders with a shorter timeframe to execute their strategies. This shorter timeframe can be appealing for those looking to capitalize on short-term market movements or generate quick profits. However, it also comes with increased risk and volatility, as there is less time for the underlying asset to reach the desired price point.
When implementing the options wheel strategy, one option is to use ETFs (Exchange-Traded Funds) instead of individual stocks. ETFs offer diverse exposure to a basket of securities, lowering the overall risk associated with the wheel strategy. When selecting an ETF for the wheel strategy, ensure that the ETF has high liquidity and a relatively stable price chart.
The one thing with ETFs is generally they have lower premiums Vs stocks because their implied volatility is lower.
If you don’t know where to get started with ETFs I have put together a unique list of them here that make for good option wheel candidates.