Can You Trade Options in Extended Hours?
Explore the nuances of options trading hours, distinguishing between standard contracts and those with extended access, and learn about off-hours market conditions.
Options contracts are derivatives that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined strike price by a specified expiration date. Their value is derived from assets like stocks, commodities, or indices. Buyers pay a premium for these contracts, which offer flexibility for risk management or speculation. In the United States, major stock exchanges like the New York Stock Exchange (NYSE) and Nasdaq operate during standard market hours, generally from 9:30 AM to 4:00 PM Eastern Time (ET) on weekdays.
Options Trading Hours
Traditional equity and exchange-traded fund (ETF) options contracts primarily trade during these standard market hours. Unlike underlying stocks, which often trade in pre-market and after-hours sessions, the market for most options effectively closes with the regular trading session. This limitation stems from the standardized nature of these contracts and the operational framework of options exchanges.
Options exchanges, such as Cboe Options, NYSE Arca, and Nasdaq PHLX, have specific rules for trading hours. The Options Clearing Corporation (OCC) guarantees exchange-traded options in the U.S., facilitating clearing and settlement. This centralized structure relies on established trading windows to ensure an orderly market with sufficient liquidity and reliable price discovery. The absence of active market makers and sufficient order flow outside regular hours makes it impractical to provide continuous, liquid trading for these complex financial instruments.
Related Instruments with Extended Hours
While most equity and ETF options adhere to standard market hours, certain options-related instruments offer extended trading opportunities. Options on futures contracts, for instance, trade almost continuously, reflecting the nearly 24-hour nature of their underlying futures markets. This allows participants to react to global news and events outside conventional U.S. market times.
Options on broad-based indices like the S&P 500 Index (SPX) and the Cboe Volatility Index (VIX) offer extended global trading hours. The Cboe Options Exchange, for example, offers Global Trading Hours (GTH) for SPX and VIX options, typically running from 8:15 PM to 9:25 AM ET, followed by a “Curb” session from 4:15 PM to 5:00 PM ET. These index options are distinct from individual equity options and are designed with different settlement mechanisms, such as cash settlement and European-style exercise, which are more conducive to extended trading. However, options on other indices, such as the Nasdaq-100 Index (NDX), generally maintain standard trading hours from 9:30 AM to 4:15 PM ET.
Market Characteristics in Extended Hours
Trading in extended hours presents unique market characteristics that differ significantly from regular trading sessions. A primary feature is significantly reduced liquidity. Fewer participants are active during these periods, leading to less order flow and making it more challenging to execute trades at desired prices.
This lower liquidity results in wider bid-ask spreads. A wider spread means a greater difference between these prices, which can increase the cost of entering or exiting a position. Additionally, prices can be more volatile during extended hours due to thinner trading volume, potentially leading to larger price fluctuations compared to regular market hours. The absence of continuous market maker presence, who typically provide liquidity during regular hours, further contributes to these conditions.