Stocks & Commodities V. 31:6 (65): Explore Your Options by Tom Gentile
Product Description
Explore Your Options by Tom Gentile
Maximizing your hedge with minis
Here’s a question I get asked at almost every option event at which I teach: “Tom, how do I hedge 10 shares of Google?” Until recently, my answer used to be, “Get 90 more shares, and then we can talk.” But as of March 18, 2013, my answer has changed.
On that date, the Chicago Board Options Exchange (CBOE) launched a new product called mini-options aimed at the smaller investor (in this case, an investor who holds less than 100 shares of some higher-priced stocks) who is looking to hedge odd-lot securities. What exactly is a mini-option? First, to review, a regularsized equity option contract gives the buyer the right, but not the obligation, to buy 100 shares of the underlying asset at a set price for a set period of time. Regular-sized options have many strike prices both above and below the stock price. Regular options could have as little as one week to expiration or as long as years. A mini-option represents one-tenth of the value of a regular-sized option. Thus, a mini-option contract is good for 10 shares of stock and is in many ways like standard options.
Now, before you go out and analyze your odd-lot portfolio, you should know that the launch by the CBOE is a pilot program and mini-options are offered only on the following stocks:
AAPL, AMZN, GOOG, GLD, SPY
These mini-options, like the regular-sized options, offer various strike prices and the same expiration dates as their larger counterparts. They are similar to their bigger brother, but smaller. I can think of two segments of the trading and investing community that may look to mini-options as a viable product for their portfolio:
Maximizing your hedge with minis
Here’s a question I get asked at almost every option event at which I teach: “Tom, how do I hedge 10 shares of Google?” Until recently, my answer used to be, “Get 90 more shares, and then we can talk.” But as of March 18, 2013, my answer has changed.
On that date, the Chicago Board Options Exchange (CBOE) launched a new product called mini-options aimed at the smaller investor (in this case, an investor who holds less than 100 shares of some higher-priced stocks) who is looking to hedge odd-lot securities. What exactly is a mini-option? First, to review, a regularsized equity option contract gives the buyer the right, but not the obligation, to buy 100 shares of the underlying asset at a set price for a set period of time. Regular-sized options have many strike prices both above and below the stock price. Regular options could have as little as one week to expiration or as long as years. A mini-option represents one-tenth of the value of a regular-sized option. Thus, a mini-option contract is good for 10 shares of stock and is in many ways like standard options.
Now, before you go out and analyze your odd-lot portfolio, you should know that the launch by the CBOE is a pilot program and mini-options are offered only on the following stocks:
AAPL, AMZN, GOOG, GLD, SPY
These mini-options, like the regular-sized options, offer various strike prices and the same expiration dates as their larger counterparts. They are similar to their bigger brother, but smaller. I can think of two segments of the trading and investing community that may look to mini-options as a viable product for their portfolio:
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