Stocks & Commodities V. 29:5 (60): Explore Your Options by Tom Gentile
Product Description
Explore Your Options by Tom Gentile
A STRONGER CALL POSITION
I’ve noticed many stocks see their strongest or weakest price levels in afterhours or premarket trade immediately following an earnings release. With the stock’s listed options not open during those sessions, it seems an investor with a long call, if the move is up, could be missing out on exiting at more opportune levels. Why is this and do you see any changes in the future?
Whether listed equity options will trade in the afterhours or premarket sessions and afford option strategists the same type of access as stock traders have to their shares is, in the end, a political thing. I haven’t heard of any pending reform to do so.
One real deterrent to extending trading hours for options is liquidity. Remember, calls and puts are derivatives of the underlying, which we can assume will have less liquidity during these trading sessions. Thus, even if you are holding a typically well-traded front month option, closing or adjusting into an attractive spread would likely prove challenging at best.
An argument to extend trading hours for a security’s options might be following an earnings announcement. For the most highly capitalized companies that also sport strong institutional liquidity during the regular trading session, this could make sense. For companies such as Apple (Aapl), Google (Goog), Bank of America (Bac), and the like, we might expect there to be sufficient interest to make a special session worthwhile.
A STRONGER CALL POSITION
I’ve noticed many stocks see their strongest or weakest price levels in afterhours or premarket trade immediately following an earnings release. With the stock’s listed options not open during those sessions, it seems an investor with a long call, if the move is up, could be missing out on exiting at more opportune levels. Why is this and do you see any changes in the future?
Whether listed equity options will trade in the afterhours or premarket sessions and afford option strategists the same type of access as stock traders have to their shares is, in the end, a political thing. I haven’t heard of any pending reform to do so.
One real deterrent to extending trading hours for options is liquidity. Remember, calls and puts are derivatives of the underlying, which we can assume will have less liquidity during these trading sessions. Thus, even if you are holding a typically well-traded front month option, closing or adjusting into an attractive spread would likely prove challenging at best.
An argument to extend trading hours for a security’s options might be following an earnings announcement. For the most highly capitalized companies that also sport strong institutional liquidity during the regular trading session, this could make sense. For companies such as Apple (Aapl), Google (Goog), Bank of America (Bac), and the like, we might expect there to be sufficient interest to make a special session worthwhile.
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