A common question many new traders have is whether options are trading by the hours.
The short answer is no, with a few notable exceptions.
To really answer the question, we must first determine what “after hours” means.
Stocks and options are traded on a market called an exchange.
There are different exchanges around the world, each with their own trading hours, but most of them correspond to three “big” trading hours called a “trading session”: USA / America, Europe and Asia.
The exchange between the USA and America takes place from 9:30 a.m. to 4:00 p.m. US Eastern Time
Trading traditionally takes place Monday through Friday within these hours, which means that there are only two hours on weekdays when trading generally does not take place: 8:30 a.m. – 9:30 a.m. and 4:00 p.m. – 5:00 p.m. Clock.
It is important to note that certain exchanges may be closed for all or part of a normal trading session due to public holidays (and Asian exchanges often close during their lunch break).
In order to trade on an exchange, you need to contact a broker or brokerage firm.
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The hours that are “during the market” depend on the broker and the exchange they are connecting you to.
All times outside of these specific hours, regardless of whether they are before opening or after closing, are considered “after hours”.
While some exchanges allow securities to be traded outside of business hours, options trading is closed.
As mentioned, there are a few notable exceptions: ETFs (Exchange Traded Funds) like SPY and QQQ are the most common examples on the US and American stock exchanges.
They will often trade for another 15 minutes after the closing bell, but will close (after expiry) based on the price of the underlying asset.
(Note that options may no longer be traded with the normal trading session on their expiration date.)
Perhaps a more pertinent question would be, instead of simply saying, “Do options trade after hours?”, “Are there risks in holding options by expiration?”
And the answer is somewhat surprisingly yes.
As an options trader, you buy and / or sell options on an underlying security in the hope that it will move in the desired direction by the time it expires.
If you hold your options until they expire, you run the risk of working automatically Exercise or task.
In and of itself, this seems pretty straightforward: if your option is in the money (ITM) at expiry with an option you bought, it makes sense to exercise that option to take advantage of being ITM.
If you’ve sold an option and ITM has expired, expect it to be assigned as well.
However, this is not always the case.
As we discussed earlier, options trading stops during the normal trading session, but it is often still possible to trade the underlying securities well after the closing bell.
This can lead to unexpected behavior as options trading ends before they actually expire.
Without considering weekly or weekly options, the standard (monthly) options expire on the third Friday of the month – although this is technically imprecise.
They stop trading on the third Friday of the month but expire at noon the next day.
Since it is possible to continue trading securities for options after the close of trading, there is a risk that the security will trade during the strike, creating an option that ITM suddenly closes out of the money (OTM) or vice versa.
This can result in an unexpected mapping or the lack of an expected mapping.
In most cases, after hours, the movements are insufficient to change expected behavior.
Be aware, however, that you may be assigned the security, especially if you were short selling even though the option was OTM when you last could trade it.
The more volatile the movement of the underlying asset and the closer the price is to your strike at the closing bell, the greater the chance of a “surprise event”.
In order to avoid surprises, it is therefore advisable to close positions with PRIOR before the closing bell of the last trading day before expiry.
So do options trade by hours?
In a word, no.
However, this does not mean that you only need to deal with the prices of the underlying asset between the opening and closing bells.
Binary events like earnings reports or other news reports often occur after options trading for that day is closed.
Many of you may be trading options specifically in connection with these events in an attempt to capitalize on such movements when options are not traded.
When it comes to expiry, however, you need to consider the potential risks – and if you are not familiar with these, you will need to close / leave the position in front of the closing bell on the expiration day.
Disclaimer: The above information applies to For educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are unfamiliar with exchange-traded options. All readers interested in this strategy should do their own research and seek advice from a licensed financial advisor.