Annualized Returns for Weekly and Monthly Options March 25, 2024
Over the years, I have presented the pros & cons of weekly options versus monthly expirations for our covered call writing and put-selling trades. One of the advantages to weekly expirations is a greater annualized return, in most cases. In this article, I will detail a real-life example with Pinterest, Inc. (NYSE: PINS), a stock on our premium watchlist on 12/4/2023.
- PINS was trading at $34.18 on 12/4/2023
- The weekly (12/8/2023) expiration, $35.00 call had a published bid price of $0.21
- The Monthly (1/5/2024) expiration, $35.00 call had a published bid price of $0.89
- Both option-chains showed narrow bid-ask spreads, so we will use the published bid prices in our calculations
PINS: Weekly & Monthly calculations using the BCI Trade Management Calculator (TMC)
- Notice I used an expiration date of 12/10/2023 (red arrow), instead of 12/8/2023. This way the weekend is incorporated (7 days, not 5 days) into the annualized return and will not inflate the practical returns
- The initial time-value returns for the Weekly option is 0.61%, 32.04% annualized based on a 7-day trade
- The initial time-value return for the Monthly option is 2.60%, 28.80% annualized based on a 33-day trade
- The weekly option generated a greater annualized return by 3.24%
Discussion
We can all be quite successful with our covered call writing and put-selling trades using either Weekly or Monthly expirations. Both works well. This article used a real-life example with PINS to demonstrate one of the Weekly advantages … greater annualized returns in most scenarios.
Author: Alan Ellman