NYSE Euronext (NYX) launched mini option contracts on five of the most actively traded stocks and exchange traded funds on March 18th. The move enables NYSE Arca and Amex customers to trade options in smaller blocks than before, thus enabling investors with limited capital to trade options on higher priced issues without taking outsized risks. The first five securities with available mini options are Google (GOOG), SPDR Gold Trust (GLD), Amazon (AMZN), Apple (AAPL) and the SPDR S&P500 ETF (SPY).
Steve Crutchfield, the head of U.S. Options at NYSE Euronext, joined Breakout from the New York Stock Exchange to explain to what that all means.
1. Why minis?
They're less expensive per transaction. The actual price of an option contract is typically $100x the quote. If a customer wanted to get long Apple calls listed at $10, the actual price would be $1,000. If Apple were a $45 stock it wouldn't be a problem. Because Apple is a $450 stock, its options would trade 10x as much.
Suddenly our $1 Apple call is trading at $100 and the lowest possible cash outlay a trader can pay to by the contract is $100 x 100 or $10,000.
Minis solve that problem. "A mini option is an option that delivers 10 shares of an underlying stock rather than the standard 100 shares," Crutchfield explains. Using the mini option contracts, investors can hedge their positions for less money.
2. How should minis be used?
Continuing with the example of an Apple shareholder, Crutchfield points out that an investor with $25,000 of Apple stock owns just over 50 shares. Previously, buying one lot of options to hedge that position would give the shareholder control of twice as many shares as they actually own.Read More »from Everything You Need to Know About Mini Options