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The Tenacious Trader
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I am a securities trader who holds a BSIT degree and an MCSE certification from Microsoft. I consider myself to be a buy-side analyst and investor who favors a mix of quality dividend paying stocks and individual corporate bonds. I often utilize options strategies to make stock trades and/or to... More
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  • Mini Options 0 comments
    Feb 27, 2013 9:27 AM

    On March 18, 2013 Mini Options will begin trading on many exchanges. The new Mini contracts will represent 10 shares of an underlying security, rather than the 100 shares standard options contracts normally cover. Strike prices will be at the same price levels as standard contracts, and the minimum price variation for bids and offers will apply to the new Minis.

    In my opinion the new Minis are going to be a game changer for individual investors. Now, smaller investors will have the ability to apply the same trading strategies to their portfolios as larger, independent and institutional investors. For example, if an individual investor is worried about the price of any given stock in his or her portfolio declining, the investor can, through the use of Put options, apply the same level of hedging protection that the more well capitalized investor has enjoyed over the years.

    For example:

    If I, as an individual investor, own 10 shares of Google and I am afraid that the price is going to drop, I can now buy Put options on those 10 shares to protect my investment. Before the new Mini contracts I was simply left to hope and pray that the price would either not drop or that it would not drop too quickly; thus, giving me enough time to exit the trade before incurring any losses.

    And the good news does not end with Put protection. For those who actually may be interested in purchasing shares of individual securities (i.e. as opposed to simply trading options contracts alone) the new Minis will allow traders to trade around their favorite stocks with Call options. Now, if a trader finds him or herself "assigned" a certain contract, he or she will only be obligated to purchase 10 shares of the given stock, rather than the 100 shares normally assigned with standard options contracts.

    All-in-all, I believe this is great news, and a welcomed change, for individual investors. Personally, I'm looking forward to making good use of the new contracts.

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