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What I Would Love to be Introduced in the Options Market

During my latest episode of IWO Into the Close on stocktwits TV, I mentioned about how the creation of some new derivative products would be quite desirable for shorter term traders as well as as business opportunity for the exchanges and brokerages.

I want weekly options on liquid stocks.

Total, absolute volume traded on equity options continues to make new highs year over year. There's been an influx of both retail and institutional trading as players look to hedge their risk or speculation on price direction and volatility. This liquidity has helped to create a competitive market which has tightened spreads and made it much easier to trade.

With normal expiration cycles, stock options cease trading based on the calendar month specified in the contract. With certain indices (OEX, XEO) there are option chains that open and expire every week. This offers traders the ability to trade very close to expiration, when there's some serious time decay in premiums, but the tradeoff is big leverage. These contracts aren't the most liquid, but I feel that if they were to be introduced on other indices as well as very liquid stocks, the volume and interest would pick up.

Now there's a drawdown-- they're very risky, and if you don't know what you're doing, you can lose a ton of money very quickly. But the same can be said of stock options in general and any other sort of leveraged speculation. When Diorexion opened up the SKF it was blamed for selloffs (BS) but it attracted a ton of interest and made money for good traders and the brokerages that supported that trading.

I'm not sure of what sort of structural inefficiencies this would bring on weekly creation, but I'm sure there will be traders to arb that on the Monday morning open.

I believe that weekly options should be encouraged, and I think they will be seriously considered and could open up within a couple years.

by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/