Do Options Trade After Hours?

As an options trader, you may buy and/or sell options on an underlying in the hopes that it will move in your desired direction by expiration. If you hold your options through expiration, you run the risk of automatic exercise or assignment. In and of itself, this seems fairly straightforward: if your option is in-the-money (ITM) at expiration with an option you bought, it makes sense that you’d want to exercise that option to gain the benefit of being ITM.

Likewise, if you sold an option and it expired ITM, you’d expect to get assigned. However, this isn’t always the case. As we’ve discussed, trading of options stops with the normal trading session, but it’s still oftentimes possible to trade the underlying securities well after the closing bell. This can cause unexpected behavior because the trading for options ends before they actually expire.

Ignoring any weekly or intraweek options, “standard” (monthly) options expire the third Friday of the month – though technically, this is inaccurate. They stop trading the third Friday of the month, but they actually expire by noon the following day.

Because it’s possible to still trade securities after the market closes for options, there is a risk that the security will trade through the strike, making an option that closed ITM suddenly out-of-the-money (OTM), or vice-versa. This could result in unexpected assignment, or the lack of an expected assignment.

In most cases, the moves after hours are not enough to change the expected behavior. However, be aware – especially if you are short (have sold) any options – you may be assigned the security even though the option was OTM when you last were able to trade it.

The more volatile the move of the underlying and the closer the price is to your strike at the closing bell, the greater the chance of a “surprise” event. Therefore, to avoid any surprises, it is best practice to close any positions with prior to the closing bell of the last trading day before expiration.

View single page >> |

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.