Can Options Trade After Hours? Here’s What to Know
Can options be traded after hours? Learn which options offer extended trading and understand the unique market dynamics and considerations involved.
Options are financial contracts granting the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price by a specific expiration date. These contracts are typically traded on regulated exchanges, with most activity occurring during standard market hours, generally from 9:30 AM to 4:00 PM Eastern Time. This leads to questions about whether options can be traded during extended periods.
After-Hours Options Trading Availability
Most individual stock options do not trade after the regular market closes. However, specific types of options, particularly those tied to broad market indexes or certain Exchange Traded Funds (ETFs), offer extended trading hours. For instance, options on the S&P 500 Index (SPX) and the Cboe Volatility Index (VIX) have global trading hours that can extend for nearly 24 hours a day, five days a week. Some popular ETF options, such as those tracking the S&P 500 (SPY) or Nasdaq 100 (QQQ), may trade for a short period beyond the standard 4:00 PM Eastern close, sometimes until 4:15 PM Eastern Time. This extended availability is often attributed to their underlying assets, like futures contracts, which operate on different exchanges with longer trading sessions.
Understanding After-Hours Options Trading
After-hours options trading for eligible products is facilitated through specific regulated exchanges, such as the Cboe Options Exchange, which provides infrastructure for extended sessions, particularly for its proprietary index products. Electronic trading platforms play a central role, utilizing Electronic Communication Networks (ECNs) to automatically match buy and sell orders. This process allows for price discovery and trade execution outside regular market hours. This is a structured, regulated environment on established exchanges, not an informal or unregulated “dark pool” system. Operational characteristics, including specific hours, can vary depending on the product and the exchange.
Key Differences in After-Hours Options Trading
Trading options during extended hours presents a different environment compared to regular market sessions. A primary difference is significantly lower liquidity, meaning fewer active buyers and sellers. This reduced participation can make it more challenging to execute trades efficiently, especially for larger orders. Consequently, bid-ask spreads, the difference between the highest price a buyer will pay and the lowest price a seller will accept, tend to be wider. Wider spreads increase transaction costs and can lead to less favorable execution prices than during regular hours.
The market can also experience higher price volatility during these less liquid periods. With fewer participants, even minor news events or smaller trades can trigger disproportionately large price swings. This heightened volatility introduces greater execution risk, as an order might be filled at a price considerably different from the quoted price. To mitigate these risks, market orders are not recommended for after-hours options trading; instead, limit orders are important. Limit orders allow traders to specify the exact price at which they are willing to buy or sell, providing control over the execution price, though they do not guarantee that the order will be filled.