In case you didn’t know, options market hours run from 9:30 a.m. to 4:00 p.m. Eastern Standard Time. Since the option’s value is derived from the underlying stock’s price, there’s no reason for options to continue trading once the underlying stops trading. So, there is no after-hours options trading.
This is a huge problem; I’ll explain.
Table of Contents
- What Are Options Trading Market Hours?
- Differences Between Regular and After-Hours Trading?
- Frequently Asked Questions
What Are Options Trading Market Hours?
Options trading hours are 9:30 am to 4:00 pm EST, Monday through Friday. Same as regular market hours. That means that you can only trade options during regular market hours.
Suppose you buy a call option on ABC stock ($50 calls for $5) ahead of an earnings release. After closing time and the earning releases, the stock gaps up by 20% to $60. You don’t think the gains will hold, so you want to lock in your profits. However, the options market is closed. What should you do?
We have a solution: You must short stock against your long call option. Selling stock against long calls transforms your position into a long synthetic put. The main point is that you can make money if the stock suddenly collapses.
Options Market Hours: Trading Stocks After Hours
First things first, what is after-hours trading? Let me explain. Firstly, after-hours trading happens after the market has closed.
Secondly, we can trade the pre-market session just before the opening bell. Regardless of the name, we refer to both sessions as after-hours.
Stock market hours are different than options market hours. Therefore, make sure you know how and when you want to trade.
After-Hours Trading Can Be Useful for Traders Who:
- Can’t trading during the regular 9:30 am – 4:00 pm EST session
- Like to capitalize on after-hours news
- Are comfortable with additional risk for additional rewards
How Is After Hours Trading Even Possible?
Let’s say it’s 9:00 p.m., and you want to buy 1000 shares of AMD at $80. To do so, you aren’t boarding a plane to the NYSE floor to place the trade manually.
For starters, the market isn’t even open, and if it were, you wouldn’t even get through security at the door. Therefore, after-hours options trading isn’t available.
Instead, you turn on your computer, log into your brokerage account, find the AMD ticker, and click the buy button. Your order magically goes into the cloud, and a seller’s found. Finally, you receive a notification that your order’s filled, and you’re happy.
You can thank the computerized matching system and the electronic market for that. In its simplest form, the electronic market matches buyers with sellers.
The ECN searches for sellers looking to sell at least 1000 shares of AMD for $80. When a match is found, it’s been completed. At the same time, if there’s no match, there’s no trade. One of the additional points of consideration is many brokerages allow after-hours trading. So fret no more if you’re worried about being unable to during regular options market hours. Moreover, many don’t even charge more for this flexible alternative!
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Differences Between Regular and After-Hours Trading?
Unfortunately, order types are limited when you trade the market after-hours. Just so you know, you can only use limit orders for buying, selling, or shorting. And before I forget, if you like to place customized orders with special conditions, you may be disappointed.
Below, you’ll see a list of trades you won’t be able to execute after-hours:
- Fill-or-Kill Order: a conditional type of time-in-force order to be fully executed immediately.
- All-or-none: an instruction to fill the order at the specified price or cancel it. In other words, either sell it all or sell none at all.
- Immediate-or-Cancel: An order to buy or sell that tries to execute all or part of the order immediately and then cancels any unfilled portion.
At this point, you’re probably wondering why you can’t execute these orders after hours. Despite the flexibility ECNs offer, the complex nature of the trade restrictions makes them challenging to execute.
Can I Trade After-Hours? Absolutely! The doors of the exclusive after-hours club, once reserved for institutional investors, are now wide open.
Many options traders are embracing after-hours trading, and for a good reason. The post-session offers several advantages, such as:
- Convenience: No need to hide from your boss at your desk to place trades. You can now trade from the comfort of your bedroom, the beach, or a hut in the Arctic. You get my point.
- Timing. You can act swiftly to the news. For proof, look no further than the timing of earning’s releases. Most companies release their earnings at the close of the regular session, and that’s when all the action happens. After-hours trading allows you to place trades reacting to the news without waiting for regular options market hours.
- Markdowns. Even though volatility poses a risk in trading after hours, prices are sometimes more appealing after hours.
- Access To Foreign Market Information. Because of the different time zones, foreign market activity occurs after U.S. stock market hours. Extended-hours trading keeps you in the know. Knowing what is happening in the foreign markets is crucial, as it often directly impacts U.S. market prices.
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Even though there are numerous advantages to trading after hours, you’re faced with several risks that include:
- Price Uncertainty: Quotes during regular market hours are consolidated. All this means is they represent the prices against all the open trading venues. Once the market closes, there are fewer venues to compare prices to. As a result, the price might not accurately represent what the prices will be when the regular session resumes.
- Lower liquidity: If you’ve spent time in the after-hours market, you’ll know fewer trades are happening. Because fewer shares are trading, buyers and sellers experience a large price spread. Sometimes, the stocks you want to trade aren’t available during the after-hours session. Apart from this, the lower liquidity can, unfortunately, result in higher trading costs.
- Restricted Order Types: Only limited orders are allowed when trading after hours. At the same time, this may not be considered a significant risk for traders; you need to understand its ramifications. For example, your trade won’t be completed if the price moves away from the limit order. Ask your broker if they put the trade through the following day to avoid this.
- Poor Fill Price: Your goal when trading is to get the best possible fill price; that’s a no-brainer. However, the best prices may not be available when trading outside the options market hours. In this case, you are less likely to get reasonable prices when you trade after 4:00.
Final Thoughts on Options Market Hours
Options traders can use after-hours trading to lock in gains or hedge using equities. Since options market hours are limited to regular trading hours, after-hours trading is a great way to profit and protect profits on expected news.
Nevertheless, executing trade after regular market hours poses inherent risks. At this point, it’s safe to say that regular trading hours offer better liquidity and more efficient markets. In other words, prices are more reflective of fair value.
Frequently Asked Questions
Options trading typically takes place between 9:30 a.m. and 4:00 p.m. ET, Monday thru Friday. This is regular market hours.
Can you buy and sell options after hours according to options market hours? Unfortunately, the answer is no. You can only trade options from 9:30 a.m. to 4 p.m. when the market is live. If you want to trade after hours, you must trade stocks. To reiterate, Robinhood option trading is during market hours. There are a few exceptions that some ETF options will trade to 4:15 PM EST ($SPY , for example)
An option could be exercised after hours on expiration Friday since stocks trade up until 8 pm EST, which could affect the intrinsic value of a stock. Options contracts can typically be traded until 4 pm EST Monday thru Friday.