When Can You Buy Options? Requirements and Trading Hours

Buying options can seem complex, but understanding the foundational elements clarifies the process. An option is a financial contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specific timeframe. This guide will break down the fundamental aspects of options, the requirements for engaging in options trading, and the specific times during which these contracts can be bought and sold.

Understanding Options Trading Fundamentals

An options contract represents an agreement between two parties to potentially transact an underlying asset, such as a stock, exchange-traded fund (ETF), or index, at a future date. The buyer of the option acquires a right, but not an obligation, to execute this transaction.

There are two primary types of options: call options and put options. A call option grants the holder the right to buy the underlying asset at a specified price, known as the strike price, on or before a certain expiration date. Conversely, a put option provides the holder the right to sell the underlying asset at its strike price on or before its expiration date. The strike price is a fixed value that does not change throughout the life of the contract, serving as the agreed-upon transaction price if the option is exercised.

Each options contract also has an expiration date, which is the specific date and time the contract becomes void. The price paid by the option buyer to the seller for this right is called the premium. This premium is the maximum amount an option buyer can lose on the trade, as it is the cost of acquiring the contract itself.

Requirements for Options Trading

To begin buying options, an individual must first establish a specialized brokerage account. Brokerage firms require specific approval for options trading, which typically involves a detailed application process.

This application often assesses an individual’s financial suitability, which includes factors like income, net worth, and investment objectives. Brokers also evaluate an applicant’s trading experience and their understanding of options mechanics and associated risks.

Options trading approval is commonly structured into different levels, with each level permitting increasingly complex strategies. For instance, a lower level might allow only the buying of basic call and put options, while higher levels permit more advanced strategies such as spreads or uncovered options. While the specific requirements vary among brokers, a higher level of approval generally indicates a greater demonstration of financial capacity and trading knowledge. Furthermore, sufficient capital is needed to cover the premium paid for the options contracts, as this is the direct cost of acquiring the right.

When Options Can Be Traded

Options contracts are primarily traded during the regular hours of the U.S. stock market. This means trading typically occurs from 9:30 AM to 4:00 PM Eastern Time, Monday through Friday. While certain index options or options on specific exchange-traded funds (ETFs) may trade slightly longer, the standard trading window remains consistent for most.

The expiration date is a crucial temporal aspect of an options contract. Options have various expiration cycles, including weekly, monthly, and longer-term options known as LEAPS (Long-Term Equity Anticipation Securities). Trading for a specific options contract ceases on its expiration day, which for monthly options is typically the third Friday of the month. The last opportunity to trade them on an exchange is generally at 4:00 PM ET on that Friday. Trading is also suspended on federal holidays when the stock markets are closed.

Executing an Options Trade

Once the necessary brokerage account is established and approved, and during market hours, executing an options trade involves several steps within a trading platform. The process typically begins by navigating to the options trading section of the broker’s website or application. Here, you would select the specific underlying asset—the stock or ETF—on which you wish to trade options.

After selecting the underlying asset, you will typically access an “options chain” or “options matrix.” This is a table that displays all available options contracts for that asset, organized by expiration date and strike price. Within the options chain, you can choose between call or put options, select your desired expiration date, and then pick the specific strike price. The premium, or price of the option, will be displayed for each contract.

With your chosen contract identified, you then proceed to place the order. This involves specifying the number of contracts you wish to buy. You will also need to select an order type, with common choices being a market order or a limit order. A market order aims to execute the trade immediately at the best available current price, while a limit order allows you to specify a maximum price you are willing to pay, though it may not execute if that price is not met. The final step is to review all the order details, including the premium and total cost, before submitting the trade for execution.