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NET Trader
Weekly OEX Options Explained
New Era Trader (NET) specializes in trading short-term expiring OEX options.  Our short-term, mostly intraday trading methodology (discussed elsewhere on our website and within our trading courses) maximizes returns and reduces risk when hedged with S&P E-mini futures.  Returns can exceed an unbelievable 2-3X in just hours.  However, there are a number of trading techniques that must be employed.  For many experienced option traders these NET techniques are often counter-intuitive.  OEX option trade volume or its marginal liquity is profit-limiting factor.  A large bid-ask spread and large S&P directional moves cause the OEX options to become expensive and are limiting factors.

OEX options are index-based "weekly" options meaning their life is for only one week or eight days or Friday through Friday.  The following week a new weekly OEX option is created with a new symbol. Like all options the value of the OEX option erodes quickly near the end of the term.

The OEX option underlying "security" are the S&P 100 or a capitalization-weighted index of 100 broad-range industrial stocks.  This group of stocks is managed by Standard and Poors.

The minimal tick amount for options trading under $3.00 is $0.05 (100 * $0.05 = $5.00) and $0.10 (100 * $0.10 = $10.00) for all others.  One point, for example moving between 100 and 101, is equal to a $100 move in the contract's price.  Therefore a $1-2.00 expiring option controls the value of the underlying which roughly equals a whopping $55,000 (as of Sep 2009) - that's extreme leverage!  A $1.00 option costs $100 (or 100 * $1.00 = $100.00 investment plus commission).

For near-term months, OEX strike prices are in $5.00 increments.  So, for example, if the index is 100, the strikes are $90, $95, $100, $105, $110.

OEX option symbols (commonly called the "razors") can be found here.

OEX option trading hours, Chicago time, are 8:30 AM to 3:15 PM Monday through Friday and are regulated by the Chicago Board Options Exchange.

Expiring OEX options provide extreme trade leverage.  For example on a Friday afternoon if the S&P market and the OEX strike price align, an at-the-money OEX call option contract becomes liquid and may sell for $1.00.  If the underlying OEX index moves 5 points favorably which is equal to 10 S&P E-mini points (which happens frequently), the OEX option value may rise (even after premium erosion) to at least $4.00 which is a 400% increase in value - in a few hours!

NET traders trade the OEX for its leverage and low cost especially on Thursdays and Fridays and, infrequently, on Wednesdays.  Experienced NET OEX option traders also hedge and parlay their trades with S&P E-minis.  Traders wanting to hedge their OEX option positions after hours (for example to lock-in pre-market profits) can hedge with S&P E-minis on an OEX option-to-E-mini ratio basis.  Of course, well-heeled traders trade in the dozens or hundreds of contracts.