Butterfly Option Strategy » Risk

Options Trading and Risk

admin — Sun, 10 Jan 2010 03:41:53 +0000

Is options trading risky? This is one of the most popular questions that options trading beginners ask. In fact, my clients ask me this same question all the time. I would then ask them “What do you mean by risky?”. The usual answer would be “Can I lose a lot of money in options trading?”.
At least this brings us somewhere. Asking if options trading is risky without a clear idea what risk is in the first place gets nobody anywhere.
Risk is defined in many different ways to different people and for most people, risk is simply an expression of their fear of losing money. Whenever I am asked by an options trading beginner if options is risky, I know what they are really telling me is that they don’t want to lose money. How can we address this “risk” then?
Even though there are many ways to define risk in the financial sense, I think my 2 parts explanation caters best to the needs of the common retail investor. In my 2 parts explanation, risk in options trading for common retail investors are made up of; 1, Probability of Loss. 2, Consequence of Loss.
It’s like crossing a street. The probability of death is small but the consequence of death is catastrophic. However, because the probability is so small, we continue to do it every day.
In stock trading, you cannot really control the probability of loss because you win only if the stock goes up. That is why stock traders reduce the consequence of loss by having sensible stop loss in place.
See how the probability of risk and the consequence of risk interact with each other now?
The good news about Options Trading is that you get to control both the probability of risk and the consequence of risk! If you can control both elements of risk, won’t options trading actually be less risky than stock trading?
Options trading reduces the probability of risk through options strategies that profit from more than one direction. In fact, there are options strategies that profit when the stock goes up, down and sideways all at once! When you can profit in so many different directions all at once, won’t your probability of risk be dramatically reduced? An example of such an options strategy is the Call Ratio Spread which makes a profit if the stock goes up to a certain limit, stay stagnant or go down endlessly.
Options trading (http://www.optiontradingpedia.com) reduces the consequence of risk through leverage. Leverage cuts both ways. If you abuse leverage and buy options like you buy stocks, then you are in big trouble. However, if you use only money you can afford to lose in each options trade and make use of its leverage to produce the same returns that you would if you have bought the stocks instead, won’t the consequence of risk always be within your acceptable limit? An example of this is the Fiduciary Call options trading strategy.
Since the probability of risk and the consequence of risk can be dramatically lower in options trading than in stock trading, is options trading still “risky”?
Risk can be defined in many ways and options trading is inherently risky due to its nature as a leveraged derivative instrument. However, with sensible control of the probability and consequence of risk, your options trading experience may be a lot less “risky” than you think. Options trading becomes “risky” when you lose control over these 2 critical elements.

Trading the Infamous Iron Condor

admin — Tue, 05 Jan 2010 03:03:20 +0000

Placing iron condor spreads on the broad market indexes is a relatively conservative, non-directional trading strategy that may be used for consistent income generation. This strategy profits as long as the index trades within the channel formed by the two spread positions. It is best used during sideways or slowly trending markets.Condor SpreadsA condor spread is a debit spread, established by placing a bear call spread at or above resistance and placing a bull call spread at or below support. The condor may also be established using puts with a bear put spread above and a bull put spread below. The iron condor is a variation on this trade by using a bear call spread above and a bull put spread below the price of the underlying stock or index. The iron condor is a credit spread and achieves maximum profitability if the price of the underlying closes between the short options (the strike prices we sold) of the two spreads at expiration. In that case, all options expire worthless and you achieve the maximum profit, i.e., the credits originally collected. The profitability of the iron condor is assisted by the fact that the broker only requires margin for one of the credit spreads, effectively doubling the return on investment.Condor spreads are effective when the underlying is expected to trade within the channel defined by the spreads during the life of the options. The closer one places the spreads to the current price of the underlying, the higher the returns; however, this comes with a higher risk of the price of the underlying stock or index entering one of the spreads and causing a loss on that spread.Trading the stock indexes with condors is effective for several reasons: 1) the indexes generally move slower than most individual stocks, 2) the indexes are less affected by an individual stock’s bad news, 3) the premiums of the index options are generally much higher than individual stock options, 4) index options trade in high volume because large institutional investors use these options to hedge their portfolios; this results in high liquidity, and 5) 60% of the gains with broad index options are taxed at long term capital gains rates, regardless of the length of time in the trade. Money ManagementMoney management refers to the rules used for determining the amount of capital devoted to a trade and spreading risk among strike prices and time. Determine the total dollar value you wish to devote to this strategy. For this example, we will assume we have a $100,000 account we will exclusively trade using the iron condor strategy. Take 40% of the total portfolio ($40,000) and divide by $1000 to get 40. This is the total number of contracts you will trade in this strategy each month (40 contracts total in the bear call spreads and 40 contracts total in the bull put spreads). This approach lessens your exposure during any particular month and leaves you room in the account to put on next month’s positions before last month’s positions have expired. This also reserves an additional 20% of capital as a safety margin and for possible use in trade adjustments. IMPORTANT: when learning this or any options trading strategy, start very small with one or two contracts and gradually increase your size as your experience and confidence grow.Money management also includes the concept of limiting your losses. Playing iron condors on the indexes as outlined in this paper are conservative, high probability trades. However, the potential loss is quite large, even though the loss has a low probability of occurrence. Therefore, one loss may wipe out several months of profits. Stop loss and adjustment rules and the discipline to strictly follow them are critical to the success of trading iron condors. Those stop loss and adjustment systems are taught in detail in the Advanced Options Trading Strategies course offered by Parkwood Capital, LLC.Timing (Days to Expiration)You can establish your condor position sometime in the range of 40 to 50 days until expiration. The precise time is not critical. The trade-offs are as follows: the earlier I put on my spread positions, the more time premium is present in the options and therefore I can receive the minimum credit I am willing to accept farther out from the current levels of the index; therefore, more safety margin is achieved. However, the more time I use in the spread, the more time that exists for the market to move against me; thus, I am incurring more risk. As time decay reduces the option premiums, I must move my spreads in closer to achieve a reasonable credit, reducing my safety margin and increasing my risk. It is also possible to trade the iron condor starting at about 30 days to expiration, but the system rules and adjustments must be adjusted accordingly.Determining Optimal Entry PointsSome traders place the call spreads when the index is hitting resistance and appears to be turning down, and place the put spreads when the index is hitting support and appears to be turning back upward. This will maximize the size of your credits. However, if the index continues to move in that direction, your position could be in trouble quickly and you will not have the compensating spread position helping to hedge your position. For this reason, I generally establish both the call spreads and put spreads on the same day.Choosing the StrikesWe can apply basic statistics to our deciding which strike prices are “far enough” out to be safe. The classic “bell shaped curve” we have seen in various contexts is the mathematical function known as a normal or Gaussian distribution. If we assume that future moves of the index price will be random and similar in frequency and absolute size to previous fluctuations up and down, then we can calculate the probability of the index price being at a particular price on a particular date in the future. I calculate the standard deviation for the index, based upon its level of implied volatility and the time left to expiration. The call spreads are placed just outside one standard deviation above the index price and the put spreads are placed just below one standard deviation below the index price. This results in an iron condor position with a probability of success of approximately 80-85%. The details of this methodology are taught in the Equity and Index Options course offered by Parkwood Capital, LLC.Entering the Order and Getting FilledNow that we have determined the strike prices for our spread, we need to calculate the credit we are going to ask for in our order. Compute the natural price for the credit spread, the natural debit spread price, and the midpoint of the spread (most online brokers calculate this for you).Enter your order at a credit limit at the midpoint and wait to see if the order is filled. After a few minutes, adjust the credit downward by $0.05. Repeat until both spread orders are filled. But do not drop below the lower quartile of the bid/ask spread.Never place an order for less than $0.60 to $0.70 in credit; trading commissions become too large a factor for smaller credits. My spread credits normally range from $0.60 to $1.05 per spread or about $1.20 to $2.10 per iron condor.Stop Losses and AdjustmentsThe topics of setting stop losses and the variety of adjustment methodologies available are beyond the scope of this paper. An effective, but simple, risk management technique is to monitor the debit spread necessary to close your condor spreads, and when that debit is double the original credit received for that spread, close that side of the condor. This technique will close out positions more frequently, but it will result in very small losses or near breakeven results in the “bad” months when the index moves against you.Index Option SettlementIndex options are cash settled options; there is no underlying instrument like stock shares to be called away or put to you. You simply lose or gain the dollar value at expiration, e.g., you hold 10 contracts of the $1400 call and the SPX settlement price is $1405; your account will be credited with $5,000 ((1405 – 1400) x 100 x 10). If you were short the $1400 calls, your account would be debited $5,000.Most index options are somewhat unusual in that they cease trading for the month at market close (4:15 pm ET) on the Thursday before expiration, but the settlement price is not that closing price on Thursday or the opening price Friday morning. Therefore, all final adjustments to positions must be done on Thursday before the close. On Friday morning, the settlement price will be computed based upon the opening prices of each of the stocks that make up that index. Since each stock may not trade immediately at the open, the settlement value may not be available until later that Friday morning. Since the settlement price may vary several dollars up or down from Thursday’s close, one must be cautious about going into settlement with any spread positions remaining open.Expected ReturnsIf you are placing your spreads for credits of $0.70 or more, then the returns for that iron condor will be about 15% for the month (remember that margin is only charged for one half of the iron condor). If we are using roughly half of our capital for an iron condor each month, then you can expect to average returns of about 6% to 8% per month. Of course, you may have to defensively close one of the spreads a few times per year and that will reduce the annualized return of this strategy. SummaryThe iron condor trading strategy is a relatively conservative, non-directional options strategy that may be used for consistent income. However, this strategy is typical of low return strategies with high probabilities of success. The probability of a loss is small, but one large loss will wipe out several months of profits. Thus, the key to success for trading iron condors is solid risk management rules for entry and exit, stop losses, and adjustments. When deployed conservatively as outlined herein, this strategy should reasonably be expected to return 5% or more per month.

OOption Theory and Trading: A Step-by-Step Guide To Control Risk and Generate Profits (Wiley Trading) (Kindle Edition)

admin — Thu, 24 Dec 2009 17:55:35 +0000

An accessible guide to understanding and using options Leading options educator Ron Ianieri has created a tried-and-true options training program drawing on his years of experience training new traders. The goal of Option Theory and Trading is to give readers the knowledge to select the optimal strategy for a given situation and to implement that strategy in the most cost-efficient way possible. In addition, the book explains the risk of any and all option positions; examines the techniques and costs involved in countering those risks; and shows when and how to exit a losing trade. Ron Ianieri (Boca Raton, FL) is the cofounder and chief options strategist for The Options University, a firm that provides courses and other training materials to aspiring options traders. Ianieri’s Option Theory and Trading Course is considered one of the best options training tools in the industry.

From the Inside Flap

When used correctly, options can greatly enhance yo (more…)

Balance of Risk and Reward in Options Trading

admin — Tue, 22 Dec 2009 05:42:12 +0000

You don’t need to be a trader or an investor to know that the higher the risk, the greater the reward. This concept is true in all aspects of life and business. The more risk you are willing to undertake in life, the more life returns to you. Indeed, risk and reward are directly proportional and often in trading and investment, the more risk your account is exposed to, the greater the return on investment when things work out as planned.
Knowing that risk and reward are proportional makes finding the correct balance of risk and reward extremely important to all kinds of traders; stock traders, futures traders, options traders etc. There is no one solution that works for everyone and the correct balance is decided upon the risk appetite and risk tolerance of the individual trader.
For stock traders, balancing risk and reward primarily involves adjusting the amount of growth stocks and defensive stocks in one’s portfolio. Generally, the more growth or speculative stocks in one’s portfolio, the greater the risk due to greater uncertainty and therefore the higher the gain when things works out as expected. The more defensive stocks in one’s portfolio, the more predictable returns become and therefore the lower the return as these stocks does not generally move a lot. This degree of risk / reward balancing is at best crude compared to the surgically fine degree of balancing you can have in options trading.
Stock options are the most versatile trading instrument in the world right now due to the wide array of options strategies that are employable. Yes, not only can risk and reward be balanced through employing different mix of strategies in your portfolio, there are also different risk and reward profiles achievable by each individual options strategy. There are options strategies that range from making over 1000% profit while risking all your money to options strategies that make a mere 0.01% return while risking nothing as well as every centimeters in between.
As long as you understand what your personal risk appetite and risk tolerance is, you will be able to find an options strategy that suits your needs 100%. Here’s a general outline of the kind of risk reward balance that can be achieved through options trading:
Highest Risk, Highest Reward – OTM Call / Put buying
This is the options strategy that produces the legendary 1000% profit that amazed so many beginners. What those ads did not tell you is that the risk is losing ALL the money that you put into the strategy. This options strategy involves buying out of the money(http://www.optiontradingpedia.com/out_of_the_money_options.htm)call options when you think a stock is going to go up or buying out of the money put options when you think a stock is going to go down. Professionals use this options strategy with only a very small portion of their money in order to place a bet on an uncertain event such as leveraged buyout. Some lucky amateurs use this options strategy with all their money and then become millionaires overnight. The downside of this strategy is the fact that if the stock did not move far enough in the direction you expected it to, you can lose all the money you put into the strategy. That is also why so many beginners break their accounts overnight in options trading.
Various Degrees of Risk and Reward – Options Spreads
There are literally hundreds of possible options spread strategies out there with various degrees of risk and reward for every market condition. There are more aggressive bullish, bearish, neutral and volatile spreads and there are more conservative ones. All of them shares the same logic of higher risk compensated with a higher profit potential.
Lowest Risk, Lowest Reward – Options Arbitrage
Yes, there are literally risk free trading opportunities in options trading which also returns very small, sometimes negligible returns. These are the legendary options arbitrage strategies. Options arbitrage strategies such as conversion/reversal aims to make a fixed return totally risk free through simultaneously buying the underlying and shorting the overpriced synthetic equal or vice versa. The problem with such strategies is that the returns are so low that most of the time, it’s even lower than the commissions you will pay for the trades made. Even if you manage to return a positive return, the return can be as low as 0.01% in percentage terms. That is why arbitrageurs aim to make an absolute return using enormous amounts of money.
With this in mind, the most conservative traders may choose to specialize totally in arbitrage strategies (http://www.optiontradingpedia.com/options_arbitrage.htm) while the most aggressive traders may choose to specialize in leveraged speculation using OTM options. Everyone else would be able to find something to suit your risk appetite in the hundreds of spread possibilities. This degree of flexibility and range of risk/reward possibilities makes stock options the most versatile trading instrument in the world today and why options trading (http://www.optiontradingpedia.com) is so popular these days.

Vertical Spreads and Implied Volatility

admin — Tue, 08 Dec 2009 14:33:01 +0000

One will commonly hear or read the following “rule of thumb” for options spread trading:When implied volatility is high, sell credit spreads and when implied volatility is low, buy debit spreads.Unfortunately, this is simply not true. The credit spread and its corresponding debit spread at the same strike prices will always have virtually identical returns on investment (ROI). This paper addresses the role of implied volatility in the vertical spread, both at initiation and over the course of the trade.BackgroundVertical spreads derive their name from the wall originally used to display option prices when they were first traded in Chicago many years ago. The months of expiration were displayed horizontally across the top of the board and the strike prices were displayed vertically along the left edge. Thus, spread trades using two options at two different strike prices in the same expiration month were in the same column and thus constituted a vertical spread. This includes bull call, bear call, bull put, and bear put spreads.Similarly, horizontal spreads are created by buying and selling options from the same row – different months of expiration, but with the same strike price. Horizontal spreads are also known as calendar spreads or time spreads.Diagonal spreads are created when different strike prices and different expiration months are used – thus, a diagonal line across the board between the option sold and the option purchased. An example would be buying the September $300 GOOG call and selling the July $320 GOOG call to create a diagonal bull call spread.Vertical spreads either require a net investment to initiate (a debit spread) or we initially receive money into our account (a credit spread). For this reason, it is common terminology for us to say we are “buying a call spread” when establishing a debit spread and “selling a call spread” to refer to initiating a credit spread. Bull call spreads are created by buying a call and selling another call at a higher strike, or farther OTM (a debit spread). A bear call spread is created by buying a call and selling a lower strike price call, or farther ITM (a credit spread). Similarly, a bear put spread is established by buying a put and selling the lower strike price put that is farther OTM (a debit spread). And a bull put spread consists of buying a put and selling another put at a higher strike price, farther ITM (a credit spread). Credit or Debit?There are many decisions made before we put on a trade, but for this discussion we will assume that a vertical spread strategy has been chosen as the optimal trading strategy for this situation. The next decision is whether to use a credit or a debit spread. The maximum potential gain for the vertical spread, all variables held constant except the choice of calls or puts, will be indifferent to whether the trade is established as a credit or debit spread. For example:GOOG closed at $310.71 on October 5, 2005. If one were bullish on this stock, one could place an Oct $310/$320 bull call spread for a debit of $430 ($960 – $530) and a maximum potential gain of 133%, assuming expiration with GOOG trading above $320.Similarly, one could place an Oct $310/$320 bull put spread for a credit of $560 ($1400 – $840) and a maximum potential gain of 127%, assuming expiration with GOOG above $320.The small difference between the two returns is insignificant; we are using the closing bid and ask prices for these options, and the option prices are very fluid, so picking prices at any arbitrary point and getting exactly identical results would be unusual. The conclusion is that any difference in returns between a credit and debit spread for the same underlying stock, strike prices, and expiration month will be small and temporary, because market forces will quickly adjust them to parity.It is commonly taught that one should establish a credit spread when placing a trade with high implied volatility (IV) options and a debit spread with low IV options. But the previous example illustrated identical returns for the credit and debit spreads. So, in that example, we would be indifferent to placing a debit or a credit spread. But let’s take it a step further.We will use the Black-Scholes model to compute the theoretical prices of the GOOG $310 and $320 options from the previous example, but with IV boosted up to 60% (the actual IV values in the above example ranged from 33% to 34%). Now the spread values become:The Oct $310/$320 bull call spread could be placed for a debit of $436 ($1613 – $1177) and a maximum potential gain of 129%, assuming expiration with GOOG above $320.Similarly, the Oct $310/$320 bull put spread could be placed for a credit of $563 ($2058 – $1495) and a maximum potential gain of 129%, assuming expiration with GOOG above $320.Thus, if we were considering placing a bullish vertical spread on Google, the returns would be virtually identical whether the IV was 34% or 60%, or whether we used a credit or debit vertical spread. The higher IV value increased the individual option values dramatically, but the spread values were unchanged. Higher IV does result in higher option prices, but in a spread, we are both buying and selling that high value.I also computed these option values with IV adjusted to 20%. As we see below, at this very low IV, the returns for the credit and debit spread were still identical so there would be no advantage to placing the debit spread for this low IV stock as some have taught.The Oct $310/$320 bull call spread could be placed for a debit of $381 ($580 – $199) and a maximum potential gain of 162%, assuming expiration with GOOG above $320.Similarly, the Oct $310/$320 bull put spread could be placed for a credit of $623 ($1084 – $461) and a maximum potential gain of 165%, assuming expiration with GOOG above $320.However, the returns for both spreads at IV of 20% are higher than we saw with the other examples with volatilities of 34% and 60%. This is consistent with the overall financial laws of balancing risk and return, i.e., higher returns always carry higher risk. This example has us placing a bullish spread on a stock currently priced near the bottom edge of the price spread; the stock price must make a significant price move of over $9 before expiration for the spread to achieve maximum profitability. However, the low implied volatility tells us the probability of a significant price move is low. Therefore, the returns will be higher, commensurate with the lower probability of success, and therefore, a higher risk of loss.These examples illustrate two important conclusions:• The returns for a credit spread and a debit spread placed at the same strike prices for the same equity or index will be identical. Any price differences seen in the marketplace will be transient, as arbitrage will quickly bring the prices back to parity.• The level of implied volatility (IV) is not a consideration when placing a vertical spread and deciding on a credit or debit spread. High IV does increase the individual option prices, but we are both selling and buying option premium in a spread, so the returns for the credit and debit spreads remain identical.Changes in IV During the TradeThe maximum profitability of a vertical spread, once placed, cannot change due to changes in implied volatility after the trade was initiated. The initial investment and the width of the spread are fixed; therefore, the maximum potential return is fixed. This is equally true for both credit and debit vertical spreads. However, the time decay curves of the spreads are affected by changes in implied volatility. The value of the spread varies with time to expiration, implied volatility, and the price of the underlying stock. Of course, interest rates and dividends will also affect spread values, but these will be less significant effects. Experienced spread traders know that even though the underlying stock price may have moved as predicted above or below the spread strike prices, the spread cannot be closed for a value close to the maximum theoretical profit until close to expiration. The value of the spread will gradually approach the maximum profit as the time value of the options decays away.Increasing implied volatility (IV) during the trade results in the time decay curves being flattened so that the value of the spread approaches the ultimate value at expiration more slowly. Therefore, the probability of closing the trade early for a majority of the maximum profit is reduced. We won’t illustrate it here, but the flattening effect on the time decay curves due to increasing IV during the life of the trade is identical for credit and debit vertical spreads. Therefore, if one is expecting a large IV increase, such as in advance of an earnings announcement, there is no inherent advantage to either a credit or a debit spread. But one should expect to have to carry the trade closer to expiration to achieve a majority of the potential profit if IV increases.Vertical spreads have an inherent advantage over long or short option positions in that the ultimate profitability of the vertical spread is unaffected by IV changes while we are in the trade. By contrast, if we buy a call option in anticipation of a positive earnings announcement, we may be disappointed in the results. Most likely, IV will decrease dramatically following the announcement, and this will drive down the value of our call option. This negative effect may be of equal or greater magnitude than the positive effect on our call option due to the increased stock price.Decreasing implied volatility (IV) during a vertical spread trade results in the time decay curves spreading out so the value of the spread approaches the ultimate value at expiration more quickly. This effect on the time decay curves due to decreasing IV during the life of the trade is identical for credit and debit vertical spreads. The maximum profit available hasn’t changed, but the prospect of closing the trade early for a large portion of that maximum profit is now more probable.ConclusionsThe maxim to use credit spreads when implied volatility is high and debit spreads when implied volatility is low may be a confusion that arose out of long and short option positions. It is indeed true that one should consider buying low volatility options and selling high volatility options. If we are considering a long call or put position, we would look for options with low implied volatility because these are inexpensive options. And similarly, we would target high IV options if we were considering a short call or put position.However, when playing the stock’s directional move with a vertical spread strategy, the choice of a credit or debit spread is largely a personal preference. Some prefer a credit spread because they can earn interest on the credit monies in their accounts while in the trade; another advantage of credit spreads is fewer trading commissions (assuming the spread is allowed to expire worthless). Others prefer debit spreads because they have spent the maximum that can be lost on the trade; there is no possibility of an ugly surprise later if the trade turns against them (as there is for a credit spread). The returns for credit and debit spreads will be identical and IV levels will have no effect on the returns. The effect of the volatility (either high or low) effectively cancels itself out by the opposite nature of the two legs of the spread. Thus, vertical spreads are an excellent way to trade high volatility options when establishing a long or short option position would be both expensive and risky.The change of IV during the course of the vertical spread trade will shift the time decay curves. Decreased IV will make it easier to exit the spread early for a large portion of the maximum profit, while increased IV during the trade will make it more likely one will have to take the spread into expiration. But the ultimate profitability of the spread is unaffected by the change in implied volatility.

Put Time On Your Side

admin — Wed, 02 Dec 2009 13:59:02 +0000

Many conservative income generation trading strategies depend on the time decay inherent in options pricing. When I establish an iron condor well OTM (out of the money), I am selling option spreads and expecting those spreads to slowly lose value as the underlying stock or index trades within a channel. Other traders may use butterfly spreads or place OTM credit spreads on one side only (calls or puts); all of these trades are based on time decay working in the trader’s favor. This is in contrast to the long option position designed to benefit from my prediction of a particular directional move for the underlying index or stock. Those positions lose value over time if the predicted move does not occur, so time is not your friend for those trades.

One of the items on your checklist before making a trade should be a glance at the calendar to see if any exchange holidays are upcoming. When time decay is on your side, exchange holidays are also your friend. If the market isn’t open, it can’t move against your positions, but time decay is still occurring and improving the profitability of your position. I will often establish my OTM credit spread positions before long holiday weekends to add to my edge.Another important factor to keep in mind is the historical seasonality of volatility. Trading activity slows during several of the holidays every year, as traders take time off to be with their families and exchange business tends to slow. March and October have historically displayed the highest volatility for the year, whereas the summer months and the week between Christmas and New Year’s Day are historically slow periods of market activity. An old wall street maxim is “sell in May and go away.” It refers to the tendencies for many market participants to take vacations and long weekends over the summer, resulting in lower trading volumes and lower volatility. This tends to favor strategies like iron condors that benefit from slower moving, sideways markets.Another factor tracked by many traders is which monthly options cycles have 5 weeks and which only have 4 weeks. Option prices will be skewed because of the number of days in an option cycle. If your trading style involves consistently selling premium each option cycle, you should be aware of the five week option months, since the amount of premium income may be affected.Options trading strategies that benefit from the time decay of options prices are attractive for monthly income generation. Pay attention to the calendar and put time on your side.