As a Managing Director at NYSE Amex Options, Bill is responsible for business development and managing client relationships. Bill began his career...
The minis are coming, The minis are coming.
The minis are indeed coming to the NYSE Amex (pending SEC approval) and NYSE Arca option exchanges on March 18, 2013. I’m sure you are asking yourself, what are the minis and what is all the excitement about? Well minis are listed option contracts that will trade on NYSE Amex and NYSE Arca. Listed options are nothing new, and in fact they have been trading since 1973, so what’s the big deal, you ask. Well, minis will have a 10 share deliverable and a 10 multiplier instead of a standard contract deliverable and multiplier of 100. That’s the big deal.
This 10 share deliverable will make it possible for investors in 5 high priced securities who own less than 100 shares of the security to execute covered writes on these positions. So now an investor, with less than 100 long shares, who is looking to generate income, will be able to sell 1 mini contract for every 10 shares of the underlying security held long in his account, previously these investors could not execute covered writes. Other investors, who like to sell puts for either income generation or to acquire stock, will be able to do so without having to commit to buying 100 shares of the underlying security per contract. The 10 multiplier means that a mini contract trading at $2.50 will cost $25.00 (excluding commission) vs. $250.00 (excluding commission) for a standard contract. This enables investors to execute certain option strategies such as long calls and long puts with less capital commitment than with a standard contract.
Now don’t feel left out if you do happen to own 100 shares of these high priced securities. The 10 share deliverable mini contract will make it possible for you to customize your protection or income generation in 10 share lots. You will be able to protect a portion of your holdings by purchasing 1 put per 10 shares (1 mini equals10 shares, 2 minis equals 20 shares etc.). You will no longer be forced to protect all or none of the underlying, you are able to protect as many 10 share lots as you choose. Also, you will be able to sell as many as 9 contracts without having to commit all of your position to possible assignment.
The minis will be available for AAPL, AMZN, GLD, GOOG and SPY and will trade under symbols AAPL7, AMZN7, GLD7, GOOG7, and SPY7 and will have the same strike prices, trading increment and similar expirations as the standard contract. The mini contract will have the same rights and obligations as standard contacts in every way except for the previously mentioned 10 share deliverable and multiplier.
In closing let me say that the minis will enable investors, large and small, to customize protection and income generation, and will allow investors previously prevented from executing certain option strategies by high capital requirements to now execute those strategies. I’m sure you’ve already heard that options give you options, now minis give you even more options.
As always, do your research, be certain that you know and understand the rights and obligations associated with options and the strategy that you intend to employ and check with your advisors before entering into any option trade.