How to Profit by Trading Mini Options
28 Sep 2018

How to Profit by Trading Mini Options

The Chicago Board of Exchange on Monday

28 Sep 2018

The Chicago Board of Exchange on Monday March 18th, 2013 launched a series of mini options that trade just like standard options, but each mini options contract represents 10 shares of the underlying stock instead of 100 shares in a standard options contract.

Initially mini options are offered on five stocks: AAPL, AMZN, GOOG, GLD and SPY. Currently all of these stocks trade for over $100 per share. The idea is to give smaller investors the opportunity to use various option strategies without having to put up large amounts of capital as collateral.

Symbols for mini options have the same four primary components as their standard counterparts:

* Underlying security ticker

* Expiration date

* Strike price

* Call or Put Identifier

Mini option symbols can be distinguished from standard option symbols by the number 7, which is appended to the underlying security. For example mini option symbol for AAPL is AAPL7, for GOOG it is GOOG7.

Mini options carry a deliverable of 10 shares whereas standard options carry deliverable of 100 shares.

The premium for mini options is 1/10th of the standard option. Lets assume AAPL July 400 Calls is trading at $20. Instead of paying $20*100 = $2000 as in case of standard contract, the trader would pay $20*10 = $200 per contract for mini option.

Like the standard 100-share contracts on the same underlying, mini options are American-style options and can be exercised at any time up to expiration at the discretion of the option holder. In the above example of AAPL if a trader exercises his option he would receive 10 shares of AAPL instead of 100 shares.

Just like standard options mini option also expires on third Friday of the month.

The price increments on mini options are the same as standard options.

The commission paid to the broker is the same as standard options.

Mini options can be paired in a 1/10 ratio or with standard options in a 10/1 ratio. For example, 10 mini option contracts can be paired with 100 shares of stock or one standard option contract.

Traders cannot combine order entry for mini and standard options.

Just like standard options traders can execute various options strategies on mini options such as Covered Calls, Spreads, Butterflies, Condors and Iron Condors.

For example, if an investor is holding 50 shares of AAPL he/she can write up to 5 mini call option contracts. Previously it was not possible as minimum holding required to write 1 call option was 100 shares.

In future mini options may expand beyond the original five securities as stocks are getting more expensive as the markets continue to climb. For investors and traders with big knowledge but more modest portfolios, minis are a great addition to their war chest in the battle for profits.

Leave a comment
More Posts