If you are wondering ‘What are mini options’? Wonder no more! Mini options are option contracts that represent a deliverable of 10 shares of an underlying security, as compared to standard contracts that represent a deliverable of 100 shares per options contract.  The five securities for which mini options began trading today are SPDR S&P 500 (SPY), Apple, Inc. (AAPL), SPDR Gold Trust (GLD), Google Inc. (GOOG), and Amazon.com Inc. (AMZN).

ARE MINI OPTIONS RIGHT FOR YOU?

Touted as ‘The lower cost way to play Apple, Google and Amazon’, mini options have been suggested to be more attractive to the individual investor or trader. However, it would be prudent to consider the ‘hidden’ costs other than the per contract cost. Two such costs are commissions and the bid-ask spread.  Even relatively new options traders will recognize that buying more number of mini options will incur more in commissions. More seasoned options traders will recognize that the lower liquidity currently of mini options means that they will be paying ‘extra’ as the bid-ask spread is wider than that for standard options contracts. The accompanying graphic shows the volume and bid-ask spread for AAPL at-the-money contracts today, and makes it easy to recognize that vast differences between AAPL standard options and mini options.

AAPL standard options have smaller bid-ask spreads

AAPL mini options have larger bid-ask spreads

Next Steps – Monitor Mini Options Trading Volume

As the saying goes ‘the jury is still out’ … we need to watch the trading volume and open interest over the next few weeks to see whether or not the public will find mini options sufficiently attractive to make it a viable option for the more seasoned trader to venture into. If they do, we should see the open interest rise and the bid-ask spread drop significantly.

Happy Trading!