[OP Note: This Editorial Was Drafted by a Human]
Hey Traders,
There was big news in the options world this week.
On Monday, the CBOE started letting traders buy and sell options on 29 of the most popular names in the market before and after the regular session.
That’s 24 stocks and five ETFs . It’s also the first time any U.S. exchange has let you trade single-stock options premarket.
The lineup:
AAPL, AMD, AMZN, AVGO, BABA, BAC, F, GLD, GOOG, GOOGL, HOOD, INTC, IWM, META, MRVL, MSFT, MU, NFLX, NOK, NVDA, ORCL, PFE, PLTR, QQQ, SNDK, SPY, TSLA, TSM, and XLF.
The new sessions run from 7:30 a.m. to 9:25 a.m. ET before the open and from 4:00 p.m. to 4:15 p.m. ET after the close. Options on these 29 names made up about 53% of all U.S.-listed options volume through September, so more than half the options market just got a longer day.
It took a while to get here, too.
The SEC signed off in May, and CBOE first aimed for July 13. That date slid to Aug. 17, then slid again before finally landing on Oct. 19.
Would I add a few names and cut a few others? 100%. But by and large, it’s a good start.
Do you notice something about this list? There aren’t any indexes on it. You get SPY and QQQ, but no SPX or VIX.
There’s a reason for that. SPX and VIX options have traded nearly 24 hours a day, five days a week on CBOE since late 2021, and the S&P 500 futures have run close to around the clock for even longer.
Indexes and futures don’t trade exactly like individual stocks. But I’ve spent plenty of time trading in the after hours, and I can tell you a few things I expect from equity options in these new sessions:
- Activity will be muted. I’d bet fewer contracts trade across all of the extended hours than trade in about 15 minutes in the middle of a normal day. It’s gonna be slow.
- You’ll start to notice big premarket moves that fizzle once the market opens. That happens because the market’s thin (not many buyers and sellers around), so a handful of orders can push prices a long way.
- You’ll have a huge opportunity to use extended hours to your advantage. I could give you a bunch of ways, but I’m going to share one: closing trades.
Licia made a comment during my State of the Market show yesterday that stuck with me: A lot of the time, S&P 500 futures make both their high and their low for the day in the overnight session. Think about that next to points two and three.
We get huge overnight moves, and we’ve been getting them for decades. Alpha Architect ran the numbers on SPY from 1993 to early 2020. If you bought at the close and sold at the next morning’s open every day, you made 717%. If you bought at the open and sold at the close, you made 12%.
That gives you an opportunity to close.
Single stocks can swing even harder premarket than the S&P 500 or the Nasdaq-100. Ever held options on a stock that made a huge premarket move, only to watch it pull way back from those extremes by the time the bell rang?
I’ve seen it hundreds of times. Now you can sell those options before the opening bell ever rings and take money off the table. That’s a huge benefit for retail traders who can’t trade stock against their positions (buying or selling shares to lock in a gain the way a pro would).
Is opening new trades premarket a great idea? Almost never, and I’ll explain why another time. But for closing winners, retail traders just got an incredible new avenue.
And this is only the first step. CBOE plans to launch stock trading 23 hours a day, five days a week on its BZX exchange on Dec. 6. I’ll have more thoughts on these hours as we approach the eventuality of 23 hours and 15 minutes of trading in popular equity options.
Your only option,
Mark Sebastian