Mini Options – A Game Changer For Every Option Trader

By: Joshua Belanger Option traders, start your engines … a brand

new game starts on March 18, 2013 ready, set,

go!!!

For years, the only options contracts available to

retail investors were contracts that expired on a

monthly or an annual basis.

In 2010, a new type of option was introduced with a weekly expiration date. Every

Thursday, new contracts are available that expire in eight days on the following Friday.

Traders adept at evaluating time decay can utilize these weekly contracts to their

advantage independently or in conjunction with their monthly counterpart. Currently,

weekly options are only offered for fewer than 200 companies, but their popularity is

growing and the trend is sure to spread.

The latest tease and trading opportunity for individual investors is the mini-option,

which will be available next month. The mini-option controls only 10 shares of the

underlying versus the traditional ratio of 1 option contract controlling 100 shares of

stock or the underlying.

The mini-option will initially be available for only a few highly-traded and high-priced

companies, such as Google, Apple, Amazon, and certain ETFs. ETFs include the S&P

index (SPY) and gold (GLD).

As interest begins to increase in the mini options, the International Securities Exchange

(ISE) will begin to offer them in other underlyings.

Mini-Options Contracts

The new mini-options contracts begin trading on all exchanges in a few weeks on March

18. Demand is expected to be strong. And once again, the playing field is being leveled

further between institutional and individual investors. The introduction of these

contracts is intended to open the options market to smaller investors who have not

traditionally been able to trade in round lots of companies with share prices exceeding

$100/share.

Mini-contracts were introduced after surveys of brokerage firms revealed that many

traders possess the knowledge and experience necessary to trade options, but lack the

account size necessary to participate in the market.

Mini-Options Covered Call Example

Consider an investor who owns shares in Google and wants to write covered calls to earn

income by selling premium. It is not even a possibility unless that investor owns one

hundred shares of stock which is equal to $80,000 in today’s market. With the new

mini-options, the investor could own as few as 10 shares, or $8,000 worth, and write

a covered call to collect premium on his smaller lot size.

A seasoned trader can and does generate consistent returns using this covered call

strategy repeatedly. Mini-options solve the problem for small traders who don’t want to

tie up money in a hundred shares of just one stock.

Lotto Ticket Trades

A lot of individual investors try to game earning moves on heavily followed names. For

those that are bullish on a certain name, they look to purchase call options prior to a

company’s earning announcement. If the stock moves higher after the earnings release,

there can be huge profits in the options. In volatile stocks, like Apple and Google,

playing lower priced options versus the higher priced stock can result in tremendous

gains in a short period of time.

With mini-contracts, you can take advantage of these type of lotto ticket trades to

benefit from those types of price fluctuations without having to risk as much as you

would with normal options.

Conclusion

Next month, the new mini-options hit the market so prepare yourself for a big shift in

the options market. The playing field just got a lot bigger.

Mini-options allow you to trade with less risk by opening a smaller position than you

could with a traditional option contract. It makes it a lot easier to practice proper money

management with a smaller position size. In addition, you can diversify by having more

positions with smaller capital allocations. No single trade consumes a significant part of

your portfolio and thereby, your risk is lowered creating better odds.

The new mini-options will trade just like regular options so be careful when entering

your order. Make sure you are trading the correct contract and size or you might find

yourself overextended.

Unfortunately, the new mini-options are still subject to the SEC’s ridiculous Pattern Day

Trader Rules which affect accounts less than $25,000. Be sure you understand the

regulations or your account maybe suspended.

Do you think think these mini options will be help you finally grow your account and

utilize proper risk management?

Let me know your thoughts about these new mini options