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Weekly Options Now Available in Canada

Jason Ayres
December 17, 2014
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I had the pleasure of presenting at the Toronto Options Education Day back on September 27th, 2014. The topic was “A Guide To Weekly Options”. Even though the contracts had yet to launch the interest was overwhelming and many traders and investors have been patiently waiting to access this new product since then.

Well the wait is over, the Montreal Exchange has officially launched weekly options on the following stocks:

  • Barrick Gold Corporation (ABX)
  • Blackberry Ltd (BB)
  • Encana Corp (ECA)
  • Goldcorp Inc (G)
  • Ishares S&P/TSX 60 index ETF (XIU)
  • Potash Corp of Saskatchewan (POT)
  • Royal Bank of Canada (RY)
  • Suncor Energy Inc (SU)
  • Toronto Dominion Bank (TD)
  • Yamana Gold (YRI)
These options have the same contract specifications as a standardized monthly contract except that they are introduced on a Thursday and trade through to the close of the Friday of the following week. The main difference between Canadian weekly options and U.S. Weeklies is that only 1 Canadian weekly can be listed at any time unlike U.S. Weeklies which allow up to 5.
With this in mind, Canadian weekly options offer traders and investors a new approach to meeting their objectives.

Benefits include:
  • More choice for spreads and combinations
  • Cheaper premiums for greater short term leverage
  • More sensitivity to stock price movements for short term traders
  • Target specific events without having to purchase more time than needed
  • Protect positions against earnings by purchasing 1 week of protection versus one month
  • Enhanced cash flow for option writers with 52 expiration dates per year
Challenges may include:
  • Requirement of active management based on short term objectives
  • Little time to make adjustments due to accelerated rate of time depreciation
  • Less up front premium for the option writer
  • May be more commission intensive
Individual traders and investors will have to determine for themselves how, if at all, weekly options will fit into their plan. I am not personally a “short term” options trader however I see significant opportunity in using these weekly options as part of an income strategy.
Income Generation
Using weekly options as part of a Covered Call strategy presents an opportunity to take advantage of the rapid time depreciation associated with a short term option contract. This also allows the investor to evaluate expectations on the stocks performance over a short period of time and make adjustments accordingly.
Below is an example of Barrick Gold Corporation (TSE:ABX). The important consideration is to compare the annualized rate of return for each option write.

Barrick Gold Corporation (TSE:ABX) shares at $13.21, 14 strike call write:
ABX Weekly Comparison

Observations
While the longer term option writes deliver greater up front premium and are less transactional, the annualized rate of return is lower than the weekly write. With that in mind, the weekly option provides enhanced cash flow over the long term but offers less upfront premium. In a primary bullish market, this may be a good trade off. However, if there is an expectation that the market may be volatile (to the down side) collecting more premium up front to mitigate the anticipated market volatility may be the best solution.

The bottom line is that weekly options have unique characteristics that make them a viable solution in certain situations. It is up to the investor to determine where they fit into their plan. I believe the more tools we have at our disposal, the more effective we can be as retail investors in navigating these markets. For more information on weekly options available on Canadian stocks visit MX Products>Weekly Options

Jason Ayres
Jason Ayres http://www.croftgroup.com/

Director

R.N. Croft Financial Group

Jason is a Derivative Market Specialist by designation, Director at R.N. Croft Financial Group and educational consultant for Learn To Trade Global.com. As a member of the Investment Review Committee at R.N. Croft Financial Group, Jason contributes as a market technician and derivatives strategist. In addition, Jason acts as Director of Business Development and is responsible for the overall management of all strategic and operational marketing and partner/client relationship activities. Jason is also one of the lead instructors for the TMX/Montreal Exchange.

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