A Quick Introduction To “Mini-Options”

mini options

Many of you will have come across mini options and perhaps wondered what they are and whether they are worth trading. With so many things to think about, here is a quick introduction to mini options and what to look out for if you are considering trading in them.

You can also watch our quick video guide to mini options here.

So how did mini options come about? Well, in life, there are many things which are just too damn expensive – children, cars, houses, and stocks – to name just a few. Some of the bigger name and higher value securities over the last 5-10 years have gotten so price heavy that it almost pushes the regular trader out of the market for those stocks.

AAPL, GOOG and AMZN are among three of the more expensive stocks, with single share prices so high that it makes it impossible for a regular trader to participate in the options market trading them, without having a significant cash reserve.

If you take a GOOG contract, for example, you would have to have nearly $80k to exercise or trade the underlying 100 shares. I don’t think many investors have that kind of money lying around. The options industry recognized that something had to change to keep driving increased trends, hence the birth of the Mini Options.

Introduction To Mini Options

This new breed of option contracts is strictly aimed at allowing small investors to participate in the options market for these larger priced securities. At a tenth of the size of the standard contract the capital requirement to trade different options strategies on these bigger securities just allowed for a massive wave of possible market participants.

Mini Options

I know it can sometimes get a little bit confusing because you’ve got the monthlies and then you’ve got all of these weekly contracts and now throwing to the mix, you’ve got mini options contracts, also known as minis.

Minis were established to get a smaller percentage of control of the actual underlying stock when they’re bigger name stocks like Google and Apple. You should be able to see the word “mini” on your broker platform, right next to the actual contract.

In most cases, your platform will show a 100 whereas these contracts show a 10. For example, with Apple, the November contracts that are the regular November monthlies control 100 shares of stocks, so each contract controls 100 shares, buy, sell, whatever. With the minis, each contract controls only ten shares of stocks, and that will be visible on your broker platform.

The actual price of the options will be a lot lower for minis, for example, a regular options contract on GOOG might trade for $1,150 whereas now the same Mini Option would trade for just $115. Of course, you are only controlling ten shares as opposed to 100 shares but you can see how this allows for more investors to take part.

For me, the key to the success of these new contracts, just like the weekly option success over the last couple of years, is that they level the playing field for investors while also keeping the pricing characteristics the same for the options.

So What Do You Need To Watch Out For With Mini Options?

One thing you want to be careful of is that the minis can sometimes be fun for people to trade because they do have technically less risk, they’re lower priced, but you want to watch out for things like volume and open interest.

We looked at Apple at the time of writing this blog and noticed that the Mini options did not have a lot of volume and open interest for the contracts that were right for the money. They should have been trading much, much more than they were and it was clear that the ones which were at-the-money for the monthlies were trading a lot more contracts and had a lot more liquidity. It’s just worth being aware of that fact.

The second thing you want to be aware of is that even though these contracts are mini in size, the brokers do not charge you a mini commission. In all cases, they are still going to charge you their regular fee for controlling about a tenth of the shares.

Make sure that you just understand your position size and if you do want to get into those minis, go ahead and jump into them. I just want to make sure that you guys understand what’s involved with mini contracts.

 

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If you think that mini options are your only choice because you have a small trading account, then that’s not the case. You have plenty of other trading strategies that would work even with a small account.

Check out our video on trading with small accounts to learn more about what’s possible.

There are also many questions and answers about trading with small accounts in our Answer Vault, which might also prove helpful if you are considering starting out in options trading but don’t have a vast cash reserve.

I hope this blog on mini options has been useful to explain what they are and what to look out for.

Please do get in touch if you have any questions around trading them and if you are just starting out in trading, please do take a look at Optionalpha.com as all of our free educational materials could prove invaluable as you start out in your new trading career.

What’s Your Take On The “Mini” Option?

Like weekly options, I’m sure some of you will naturally gravitate towards these smaller contracts while others might not. Do you plan on trading them? Would you like to see more securities involved? Add your comments below as I’d like to hear what you all think about these contracts.

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.