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Weekly options: Myths
The new contracts will expire on Thursday of every week. In case Thursday is a trading holiday, the previous trading day shall be the expiry/last trading day. The strike interval for the weekly options will remain the same as monthly contracts.
Most traders believe that the premium of weekly options cost far less than monthly options and will be at a more affordable level. However, the options will be less pricey vis-à-vis monthly options mainly as the time expiry period is so short — just five trading days. Simply put, you are not paying the premium for time value. But traders have a few days only for the stock or index to turn in-the-money. If the duration is long, the chance of the option turning in-the-money is higher.
Another attraction for trading in weekly options is that the premium will adjust very quickly to evolving developments. The rate of change in option premium for longer duration options with respect to the underlying price is expected to be slow as the option moves from an out-of-the-money position to in-the-money position. This might have worked in Bank Nifty options in the last few years because of a lot of news flow with just 12 stocks constituting the Bank Nifty index. Nifty 50 index options may not swing as wildly as news flow across these sectors may be sparse. Most of the times, the Nifty 50 moves in a predictable narrow range.
Another belief is that weekly options on Nifty 50 can provide an additional hedging tool to manage the portfolio risk more effectively. But this strategy works only for big investors or institutions that have strong and wide portfolio. For small investors, whose portfolios are skewed towards small- and mid-cap stocks, it may not help much