Market Overview

Mini Options Will Go Live on Monday March 18th

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The debate to allow mini options on the CBOE has been going on for a couple years now. Ever since names like Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG), and Amazon (NASDAQ: AMZN) began trading at rather high dollar amounts, there have been parties both for and against the move.

Those who want the smaller contracts are lobbying to be able to hedge an open long position. For example, Google currently trades at $815, requiring investors to spend over $81,000 for a round lot of 100 shares. For many retail investors, this far exceeds a proper risk management position -- or their entire account -- thus allowing them to only purchase 10 shares, 30 shares, or any amount of shares below 100. With the introduction of mini options contracts, investors can own 10 shares of Google, and properly hedge that position with a put contract that matches the amount of shares currently owned. After all, it wouldn't make sense to use a normal put option (100 shares) to hedge a 25 share long position.

Those against mini options argue investors who can't handle a position of a normal-sized contract shouldn't be trading such high priced companies anyways. The components also argue these minis will add more volatility and cause unusual price movements in some companies' securities.

Perhaps this may be true, but it does allow the retail investor an alternative and efficient manner to hedge their long -- or short -- positions.

The move toward minis will also allow retail investors to make more feasible investments when applying proper risk management like buying an in-the-money mini contract instead of the outright stock. Besides going long these names via calls or short these names via puts, investors and traders can now hold an odd-lot of shares (positions <100 shares) and write covered calls against long positions to collect premium headed into expiration. Conversely, those who hold short positions can now write covered puts and use different combinations of options to properly manage their risk (like collars or protective puts, for instance).

Once Monday comes along, these mini contracts will be available for trade. The mini contracts will represent 10 shares rather than the typical 100. The ticker symbol to find these options will simply be the company ticker symbol, followed by the number "7" at the end. Below is the list of the following companies that will begin trading in this fashion on Monday.

Amazon = AMZN7 Apple = AAPL7 Google = GOOG7 SPDR Gold Trust ETF (NYSE: GLD) = GLD7 SPDR S&P 500 ETF (NYSE: SPY) = SPY7 Mini-SPX Index (NYSE: XSP) = (XSP)**

**The Mini-SPX (XSP) options have actually been active since 2006 and are currently available for trade.

Posted-In: News Options Markets


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