Stock Options: Can You Trade Them After-Hours?

Regular trading sessions for stocks and options is 9:30 am to 4 pm EST, however, there are some exceptions on certain options.

But first, let’s dig into what options are and how they work.

For a deeper dive into options, you can also check out our Options Trading Guide.

Intro

Retail traders and institutional investors are using stock options more and more to make leveraged bets on Wall Street.

In 2021, option-market trading volume hits a record with daily volumes spiking by 35% compared to 2020. As we entered 2022, traders continued to embrace options trading and the benefits it can add to their portfolios.

The rapid growth in options activity and the increased optimism among the traders is a market-moving force in itself.

In this blog post, you are going to learn how options markets work, how options could play a role in your trading plan, and the trading hours for options contracts.

Let’s get started!

What are options?

An option is a type of derivative, and therefore its value is tied to the value of an underlying security. The underlying security can be a stock, but it can also be a commodity, an index, a currency, or any other security.

A stock options contract gives the holder either the right, but not the obligations, to buy or the right to sell a set amount of shares, usually 100, at a predetermined price (strike price) within some point in the future, usually several weeks or months.

There are two types of option contracts: call options and put options.

Call options

A call option contract gives the call holder the right, but not the obligations to buy a stock at a specified price within a specified time frame.

Call options can further be broken down into the following two categories:

In-the-money call option: A call option is said to be in-the-money if the strike price is lower than the current market price of the underlying security.

Out-of-the-money call option: A call option is considered to be out-of-the-money when the strike price is higher than the current market price of the underlying security.

Put options

A put option gives the owner the right to sell an underlying security at a pre-agreed strike price within the expiration date.

Similarly, put options can further be grouped into in-the-money put options and out-of-the-money put options.

In-the-money put options: This is when the strike price is higher than the current price of the underlying security.

Out of the money put options: In this case, the strike price is lower than the current market price of the underlying security.

How options work

Now that you know what stock options are, let’s explain how they work.

Traders can buy options as a way of minimizing their downside risk when shorting or holding a stock. Options contracts are a kind of insurance since they don’t come with any obligations.

For example, if you buy a stock, you want to sell it at a future date when its price has gone up. For you to make a profit, you have to purchase the stock at a lower price and sell it at a higher price.

But because the markets are not predictable, you can’t really be sure what the future price of the stock will be. Therefore, to protect your portfolio from any potential losses, you can purchase a put option. The put option allows you to sell the stock at a pre-agreed price, either before or on the expiration date.

If the price of the stock ends being less than the strike price, you have the right to exercise the option and offload your shares at the agreed price that is laid out on the options contract. This way, you get to walk away with a profit.

Call options buyers, on the other hand, generally expect the underlying stock to increase drastically, and buying this contract can offer greater potential profit compared to owning the stock outright.

Options trading hours

In the US, the regular trading session for buying and selling stocks, options, and other securities begins at 9:30 a.m. ET and ends at 4 p.m. ET from Monday to Friday.

However, there are some exceptions.

Options for the following symbols trade until 4:15 ET:

  • SPY
  • DBA
  • DBC
  • DBB
  • XRT
  • NDX
  • DIA
  • QQQ
  • EFA
  • UUP
  • EEM
  • GAZ
  • UNG
  • IWN
  • IWO
  • OEF
  • DBO
  • IWV
  • MOOO
  • JJC
  • KBE
  • KRE
  • MDY
  • MLPN
  • Oil
  • SLX
  • IWM
  • SVXY
  • UVXY
  • VXZ
  • VXX
  • VIXY
  • VIIX
  • XHB
  • XLE
  • XLB
  • XLF
  • XLV
  • XL
  • XME
  • XLK
  • XLU
  • XLY
  • XLP

While most stock market activity happens during the regular trading hours, even the average trader can now trade after-hours using an online brokerage account.

Almost any trader with an online brokerage account can trade these options during the extra 15 minutes after the closing bell.

However, options are a different beast than stocks. And they carry a huge amount of risk. But traders looking for alternative opportunities to increase their fortunes have found that after-hours options trading can be a useful tool.

Why trade after-hours?

There are a couple of reasons why trading stock and other securities after-hours can be an amazing strategy. One of the main benefits is during earnings releases.

If you own some shares, the companies the stocks are tied to may publish their quarterly earnings after the stock market closes its regular trading session.

Accordingly, the stocks and their options can move significantly more than during the regular sessions, providing you a chance to capture gains arising from these announcements.

Another great benefit about trading options during after-hours sessions is global market activity. Asian and European financial markets can weigh on the US market.

Trading sessions in Asia and Europe take place outside of the regular session in the US, and after-hours sessions allow traders to capitalize on a huge number of stock options.

Bottom Line

As we’ve learned, options on US stocks can only be traded during regular trading sessions in most cases.

Most stocks, though, can be bought or sold during the after-hours sessions. It’s perplexing for some traders that the NYSE, the Nasdaq, and other exchanges have not created a similar after-hours trading session for many stock options.

While these exchanges have considered extending trading hours for options, they have found there is no sufficient trading volume to take care of the cost of offering such as service.

Due to the low volume, the bid-ask ranges of options tend to swell significantly. This means that you are highly unlikely to find decent prices when you trade during these extra minutes

However, sometimes it might be necessary for you to trade if you feel the prices will move between the closing price and the following day’s opening price.

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