The options landscape is changing with new innovations. A few of the market’s recent developments include the launch of micro options contracts and the introduction of after-hours options trading. These innovations provide a greater degree of flexibility for online options traders and have made options trading far more accessible to a wider range of interested individuals.
Our guide will go over these two new tools in the options market to show you how they’re guiding the future direction of options trading. These new developments are offering opportunities that weren’t even possible before, such as being able to react to market-moving news outside of the regular business hours or having the ability to deal with smaller contract sizes that are far more manageable.
What Are After-Hours Options?
We don’t want you to be confused about what after-hours options are—they’re quite different from extended hours trading. After-hours options are where you can buy and sell securities or equities before the market even opens for the day, or even after the extended hours are finished for the evening.
Although options have traditionally been confined to the market hours that the US market runs, there have been some pushes for after-hours options trading, most notably the Cboe Options Exchange (CBOE), which has been offering certain options contracts to be made available during the after-hours sessions.
There are a few perks that come to traders who embrace these opportunities, including reacting in real-time to the following events:
- Overnight global events that could impact indices and futures
- Announcements from the Federal Reserve
- Earnings releases that are announced after the closing bell
Benefits and Risks
Trading after hours opens up a lot of opportunities that didn’t used to be there, but there are also some risks to trading these types of options contracts that are worth knowing ahead of time.
Benefits
- After-hours options have potential hedging opportunities against overnight volatility.
- Traders can enjoy greater flexibility to react immediately (instead of waiting until the next morning).
- After-hours options can align the options market with futures, forex, and crypto markets, which trade almost 24/7.
Risks
- Lower liquidity can increase slippage and execution challenges.
- Wider bid-ask spreads due to lower participation.
- Higher volatility as price discovery happens in a thinner market.
Who Benefits Most from After-Hours Options?
The people who benefit the most from the after-hours options are swing traders and institutional players managing risk. Another significant category is the active earnings traders who don’t want to sit out overnight moves.
Micro Options Explained
“Micro options” are options contracts representing 1/10th the size of a standard contract. By comparison, standard options contracts represent 100 shares of the underlying stock. That means a call option priced at $2 costs $200 to control. Micro options are becoming a popular go-to for traders who have smaller accounts, allowing them to essentially control just 10 shares.
Key Uses for Micro Options
- Lower the Barrier to Entry: Not only does this perk make it easier for people with fewer resources to be able to get into options trading in the first place, but it also lets traders practice with a smaller amount of capital.
- Learning Tool: Anyone who is new to options trading can use micro options to get comfortable with how to execute the options contracts to secure a profit.
- Risk Management: Traders no longer have to overexpose their accounts, thanks to micro options, which can let them size their trades more precisely.
Micro Options vs. Standard Options: Which Fits Your Strategy?
- Standard Options—The traditional contracts are best for traders who are interested in gaining meaningful exposure. They’re looking for income strategies like covered calls to secure a profit.
- Micro Options—These work best for traders who have smaller accounts or those who would like to make improvements to their current spreads. Micro options also provide a reasonable opportunity for traders to experiment with new strategies while also accomplishing these goals.
Why These Innovations Are Changing Options Trading
The two innovations we just discussed that are changing the options market are ultimately changing the way that retail and institutional investors are approaching the markets. After-hours options align with real-time global markets (crypto, FX, futures already 24/7), while micro options make options trading more accessible to retail traders.
Let’s take a closer look at the specific ways that after-hours trading and micro options are changing things up:
- Better Accessibility: The rise of micro options brings opportunities that were never before available to retail traders with limited capital. The smaller contract size now makes it possible for them to participate, adding liquidity to the market.
- More Precise Hedging: Institutional investors can manage risk more effectively now that they are able to hedge with more granularity.
- Global Alignment: After-hour options bring equity options closer to the reality that the crypto and forex markets trade around the clock (24/7).
Another element of these options market innovations which are worth discussing is the perspective that institutional investors take away from these new features. They are better able to hedge with more precision and flexibility, due to trading options after hours and the advantages of micro options.
Strategies for After-Hours & Micro Options
What are some of the best strategies that traders can use when they use the after-hours options contracts or embrace the use of micro options? Here are some good ideas for traders who might not know or are just getting started with these opportunities.
After-Hours Options Strategies
- News-Driven Gamma Scalps: Hedge or trade around geopolitical events, Fed meetings, or surprise announcements.
- Earnings Reaction Plays: Position for post-earnings moves right as the numbers drop.
- Overnight Hedging: Buy puts or calls to protect positions before Asian and European markets open.
Micro Options Strategies
- Practicing Spreads: Try vertical spreads, iron condors, or calendars with much lower exposure.
- Scaling Into Positions: Build exposure gradually without the commitment of full contracts.
- Covered Calls on Smaller Lots: Use micro contracts for smaller portfolios.
Risk Management Tips
We’d recommend checking out the following risk management tips when using micro options or after-hours options:
- You can avoid over-trading with micro options by not being fooled by how “cheap” the contracts are in terms of their entry price.
- Track commissions on your trades because the smaller trades you experience with micro options can still add up.
- Use limit orders in the after-hours, as you should expect wider spreads.
Pitfalls and Risks to Watch Out For
You can expect the following risks to crop up when you’re dealing with after-hours or micro options. Traders will find that there are additional opportunities created from the inclusion of after-hours and micro options, but there are some pitfalls and risks that come along with the journey.
After-Hours Options Risks
- Thin liquidity leads to higher slippage.
- Price gaps when regular trading resumes.
- Limited broker support (not all platforms offer extended options trading yet).
Micro Options Risks
- Traders may take on too many positions due to lower costs.
- Smaller exposure can lead to underestimating real risk.
- Availability may be limited to certain underlyings or expirations.
The Future of Options Trading: What’s Next?
We see a bright future ahead for options trading, especially when it comes to the expansion of micro contracts and the push toward 24/7 options trading. Some of the potential trends we see coming down the pike include the following:
- 24/7 Options Trading—We see after-hours trading as the first step toward this reality. It’s already the case with the crypto and futures markets, and we see this as possibly coming to roost in the traditional options market as well.
- Micro Contracts Expansion: More indices, ETFs, and possibly even crypto options with reduced sizes are another vision of the future that we see coming.
- Customized Contracts: Exchanges may introduce even more flexible expirations and contract structures.
The trajectory is clear when it comes to the future of options trading. They are trying to make it more accessible and flexible for the average person, which brings in more potential traders (even those with small capital balances). This ultimately benefits the markets, adding to liquidity.
Embrace Micro and After-Hours Options
The world of options is no longer limited to “9:30 to 4:00” trading and full-sized contracts. The innovations discussed in this guide are reshaping the options market — but they come with new risks that require discipline, patience, and awareness. With after-hours options trading, you can react to earnings, macro events, and global moves in real time. With micro options, you can participate with smaller capital, experiment with strategies, and fine-tune your risk management.
Explore our guides on options order types, spread strategies, and cryptocurrency options to expand your playbook.
Frequently Asked Questions (FAQ)
Can You Trade Options after Hours?
You can trade options after hours, but it is to be done on a limited basis. Availability will be different based on the broker you’re using, but exchanges like the Cboe have definitely started offering after-hours options contracts, which could be a good place to begin. Traders should be aware that liquidity is usually much lower with after-hours contracts, and this can lead to wider bid-ask spreads and more execution risk.
What Are Micro Options Contracts?
Micro options are contracts that represent just 1/10th the size of a standard options contract. They control 10 shares, unlike the standard options contracts, which instead let traders control 100 shares. The point of using micro options contracts is to make options trading far more affordable and accessible to the average person. This makes a great deal of difference when you’re dealing with smaller accounts. It is also good for traders who want to size positions with more precision.
Who Benefits Most from After-Hours Options Trading?
Those who benefit the most from trading options after hours include active traders who want to react immediately to earnings reports, Federal Reserve announcements, or global news. Another group that stands to benefit from these options contracts is the institutional investors, using after-hours options to hedge overnight exposure in futures or international markets.
Are Micro Options Good for Beginners?
Beginners will love using micro options because they can be a great jumping-off point—micro options can reduce the risk per trade, and they go a long way toward lowering the capital requirements. At a fraction of the cost that comes with standard options contracts, traders can practice spreads, hedges, and covered calls with real money. Along the way, the biggest risk would be over-trading, due to the fact that “cheap” contracts can be easy to take on without much regard for the costs associated with them.
Will Options Trading Eventually Become 24/7 like Crypto?
After-hours trading is likely just the first step. The trend in financial markets is toward greater accessibility and around-the-clock trading, so it is technically possible. Futures, forex, and crypto already trade nearly 24/7, and we could see options expand further beyond the traditional market hours, so long as liquidity and infrastructure support grow.
