Lesson Overview

Option "Mini" Contracts

Option "mini" contracts are relatively new to the industry and were introduced as a way for investors with smaller accounts to trade larger dollar value stocks like GOOG, AAPL, BIDU etc. Today I'll work through the advantages and disadvantages of trading them if you are interested. One key point to remember about "mini" options is that brokers don't charge "mini" commissions on these trades. Good for them not for the average trader so we do suggest avoid these whenever possible because your commissions are much higher as a percentage of your trade value.

Show Video Transcript +

Today in the take five segment, I wanted to show you guys the difference between option minis. Some of the bigger names that are out there like Apple and Google, they have what are called mini options contracts.

And 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 contracts.

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, have mini contracts. The reason that you know that they’re mini is not only because it says mini because your broker platform might not say mini contracts, but also right next to the actual contract.

It’ll show a 100 in most cases whereas these contracts show a 10. You can see here that 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 10 shares of stocks.

You can see that it’s a lot lower command of those shares and therefore, the actual price of the options is a lot lower as well. You can see that generally, the options for the monthlies are a little bit more expensive than the options for the weeklies.

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.

You’ll notice that the minis for Apple in November right now don't have a lot of volume and open interest for the contracts that are right for the money, so the 100 and the 105.

These contracts should be trading much, much more than they are and you can see that the ones that are at the money for the monthlies are trading a lot more contracts and have a lot more liquidity, so be cognizant of that as one thing.

The second thing you want to be cognizant 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 commission 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.

Hopefully you guys enjoyed this quick little take five segments. I’m just trying to help you guys take five minutes out of your day to learn one cool thing about options trading that helps make you a smarter trader.

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