CBOE (Chicago Board of Option Exchange) has done it again and created new option products. Usually I am a fan of their work especially with the formation of the weekly options. The weeklys were a plus to the option world giving us a way to play stocks on a shorter term basis. Obviously, everyone else agrees since weekly option volume continually picks up on the various stocks.
Usually the weeklys would start on Thursday and expire the following Friday. Pretty simple and straightforward mechanics. Now, however, the CBOE have gone and taken the weeklys a step further. Now the CBOE has created weekly options on the S&P 500 (SPX) that last for a month. Yes, you read that right, weekly options that last a month. Now instead of starting on a Thursday they will start and last for 30 days.
So what is my beef with this?
- Now people can use these weeklys to hedge their portfolio. The VIX does not take into account weekly options. Are we going to lose VIX accuracy?
- Options are already a complex trading vehicle what happens when new traders get a hold of these?
- Where will we be able to find liquidity? Can we expect liquidity to fall off other major SPX products or will these not get the type of volume we can expect?
I am not a huge fan of this new change. I would have rather seen a larger list of stocks get weekly options. At the very least I would have prefered to see this change happen on the SPXPM options. If you don’t already know SPXPM is options traded on the SPX but done electronically instead of pit traded. This allows users to get better and tighter fills. This also removes the uncertainty of SET.
Perhaps these new weeklys will go the way of the binary options. We will see…
