There is a time and a place for options trading. For investors looking for a little bit more oomph to their portfolios, options inherently offer greater risk and return propositions — for better or for worse. One of the challenges with trading options beyond the leveraged profit and loss scenarios is that standard contracts represent round lots of 100 shares.
When considering high-priced stocks, that can be a little too much oomph in some cases. For example, Apple Inc. (NASDAQ:AAPL) trades in the ballpark of $430 right now, but shares were as high as over $700 just six months ago. Search giant Google Inc (NASDAQ:GOOG) has taken Apple’s place as the current tech stock darling of Wall Street, since Big G continues to tap fresh all-time highs of upwards of $840. Meanwhile, e-tail titan Amazon.com (NASDAQ:AMZN) is also just a stone’s throw away from its own all-time highs near $285. A derivative that represents 100 shares of any of those stocks can rack up quite the bill.
That’s precisely why CBOE Holdings, Inc (NASDAQ:CBOE) is announcing the introduction of mini-options that will launch later this month. Starting March 18, mini-options will being trading that are only one-tenth the size of standard contracts, or 10 shares instead of the usual 100. These new contracts will be available for Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), SPDR Gold Trust (ETF) (NYSEMKT:GLD), and SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
Those three stocks and two ETFs are among the most popular trading vehicles in the market today.
What it means for exchanges and brokers
The new mini-options are a positive for numerous financial services companies, including CBOE and brokerage firms, as both benefit from increased trading activity. The smaller contract size is more approachable, so options trading will inevitably increase. Brokerage options commissions typically carry a per-contract fee in addition to a base rate, which means the higher quantity of contracts trading directly translates into additional revenue.
Here are the online option commission schedules for some of the major brokers.
|Brokerage||Base Rate||Additional Fee-Per Contract|
|Fidelity||$7.95||$0.75 per contract|
|Charles Schwab (NYSE:SCHW)||$8.95||$0.75 per contract|
|E*TRADE||$7.99 to $9.99*||$0.75 per contract|
|TD AMERITRADE (NYSE:AMTD)||$9.99||$0.75 per contract|
The CBOE saw total options volume decline from 1.2 billion in 2011 to 1.11 billion in 2012, so any move that can increase that figure will be welcome there. Within the total, equities contracts have declined significantly in the wake of the financial crisis. Equities contract volume topped out at 634.7 million in 2009, but was just 494.3 million in 2012.