I got a Skype message from one of my options mentoring students today. He asked me if I was going to discuss the weekly options today during the AM and PM Pit Reports. My answer was no...because there are no weekly options this week. He immediately understood what you may not. The difference in trading between a weekly options listed on a Thursday vs. a regular option with one week to expire is profoundly different.
While there are several reasons, one that I would like to bring up to day is the differences in open interest. Below is a montage of AAPL options that are going to expire tomorrow and AAPL regular monthly options that expire in one week. What is the first thing you notice about the open interest?
To say that there is a small difference would be an understatement. The AAPL June2 have about 12,000 open contracts on the 330 strike. Meanwhile the regular June options have more than 50,000 contracts on the 330 strike. This makes trying to 'game' a strike much more difficult. These guys that are playing the pin game are probably pretty big players, however, my guess is even they do not want to get in the way of a fund that has a major axe to grind. Most traders think that the hedge funds have a ton of capital, however they have their limitations.
For instance imagine CalPERS owns a big AAPL position (which they probably do). If that fund was hedging with options and decided it wanted to unwind its hedge, I do not care how well capitalized a hedge fund is they would want not part of trying to 'game' the weekly options. Typically, major hedgers are not using weeklies to get their hedges off; they are using the monthly options. At any given time, a fund could decide to close an ATM strike at the last minute and send the market makers, hedge funds, and retail public flying.
This is just one of several reasons monthly options are different from weekly options. To learn the rest become an Option Pit Mentoring Student or sign up for our free weekly look-in the next time we have one (which sounds like it is coming the last week of June).
On another note i would also point out that AAPL IV is crazy cheap, I think there are some very decent trading opportunities within that issue. I will expand tomorrow. Two things though really quickly, take a look at the spread between July and August, and the level where July is trading. Then think about when exactly AAPL makes the majority of it's movments.
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Graphs from: LiveVolPro
