Option Investor
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More of "The Least You Should Know" about Options

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"Options don't begin trading until 9:45," the broker intoned. This was during my newbie days as an options trader, back when we called in our orders to traditional brokers. The broker couldn't be convinced to try putting that order through any earlier and I wouldn't profit from those options, either.

Fifteen minutes can be an eternity in an options trade. By the time that fifteen minutes from 9:30-9:45 am EST had expired, the options that were profitable for a nanosecond after the open had dropped in price, just as I had feared they would. What could have been a nice profit for a nanosecond that morning resulted in a loss, my biggest loss up until that point.

The intention of this article is not to trash traditional brokers or any brokers, but rather to continue a discussion begun last week about the least you need to know if you're going to trade options. In addition to last week's settlement-related topics, you also need to know when options trade. Although the incident related above occurred years ago, questions still arrive from subscribers, questioning when options trade.

Equity options, such as the ones I was trading back when I was a newbie and had contacted that broker, trade during the same hours as the equities that underlie those options. Generally, that means that equity options trade from 9:30 am to 4:00 pm EST, but an option doesn't open until the equity that underlies it does. If a company releases important news before the open, news that creates an imbalance that takes three minutes after the open to resolve, its options won't begin trading until then, either.

If you're trading options on an index, the timing proves a little different. Index options trade from 9:30 am to 4:15 pm EST, but don't open until after twenty percent of the stocks composing that index have opened. If traders are waiting impatiently for an SPX option's new prices after the open, those prices may not be available because the required number of component stocks might not yet have opened. The percentage can change from index to index, but the CBOE notes that percentage as applying to most indices.

Armed with this knowledge, I might have been able to convince that broker to put my order through that long-ago morning, rather than holding it until 9:45 EST as he did. That might have prevented my first big loss. Understanding when options trade might help you prevent one, too.
 

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