Can you trade stock options after-hours? No, for the vast majority of options, you can’t trade them after hours, only in the normal trading hours session. The exception is a short list of index and ETF options that trade until 4:15 PM Eastern Time on U.S. stock exchanges.
Imagine the following scenario. You’re closely watching a company, always monitoring its news feeds and calendar events. Some key news breaks after-hours on this stock and you’re wondering, can I buy or sell options on it, like how stocks trade in extended hours trading? For example, Apple (AAPL) posts great quarterly earnings and you want to buy call options before the conference call starts later in the early evening. Can you place an options trade in the after-hours?
Unfortunately, you can’t buy or sell options for Apple or most other stocks after-hours. The exception is that there’s a brief list of mostly index and ETF options that trade for an additional 15 minutes after the close until 4:15 PM Eastern Time.
The options that do trade after-hours are AUM, AUX, BACD, BPX, BRB, BSZ, BVZ, CDD, CITD, DBA, DBB, DBC, DBO, DBS, DIA, DJX, EEM, EFA, EUI, EUU, GAZ, GBP, GSSD, IWM, IWN, IWO, IWV, JJC, JPMD, KBE, KRE, MDY, MLPN, MNX, MOO, MSTD, NDO, NDX, NZD, OEF, OEX, OIL, PZO, QQQ, RUT, RVX, SFC, SKA, SLX, SPX, SPY, SVXY, UNG, UUP, UVXY, VIIX, VIX, VIXM, VIXY, VXEEM, VXST, VXX, VXZ, XEO, XHB, XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY, XME, XRT, XSP, YUK.
Despite the possible advantages of an after-hours trading strategy, stock options cannot be traded in the pre-market or post-market sessions and you must trade them during regular market hours. If it’s the evening and after the closing bell, you will have to trade the options the next trading day. However, there are a few alternatives which we’ll discuss below.
Many brokers catering to retail investors like TD Ameritrade, E*Trade, or Interactive Brokers, allow investors to trade during the extended-hours sessions, but outside of the list above that only applies to trading stocks in the extended session. Be sure to check your online brokerage account to verify their policies for individual investors.
Why would I want to trade in the after-hours?
There are several benefits to trading in the stock market after-hours. The two most common reasons why an investor or trader would want to take a trade in the after-hours or pre-market sessions would be earnings announcements or important news.
Most publicly traded companies report their earnings results quarterly and do so either before the market opens or after the market close. There’s typically a press release with the key numbers and then a follow-up conference call later where one or more company executives go into more depth about the prior quarter’s results, make some commentary or guidance about the future, and then take questions from analysts. Thus, earnings can typically provide two catalysts for trading in the after-hours — the first on the earnings themselves and again once more details are released during the conference call.
Another example of why to trade after-hours is a reaction to the news from or on a company. Common examples include acquisitions, mergers, litigation, share offering or filings, organizational changes, government regulation, product announcements, and earnings guidance.
Additionally, something that occurs in foreign markets in different time zones, Asian or European for example, could also affect the price of stocks. Foreign market activity can generate numerous additional events, potentially affecting stock prices in a significant manner.
If one of these scenarios occurs after the regular session, the stock price may move significantly in one direction the next day. Hence, traders will often want to get ahead of others and either buy or sell stock on the news.
Risks of after-hours trading
If you trade in the after-hours, be aware of low trading volumes and liquidity, wider bid ask spreads, and higher volatility.
In the pre and post-market sessions, there is significantly less volume of shares exchanging hands. Even in the most liquid of names like SPY or AAPL, the volume is a fraction of the amount trading in the regular day session. So keep this in mind as this lower liquidity may make it harder to enter or exit a trade at your desired price.
This low liquidity is then evident in wider bid-ask ranges of options that trade in the 15-minute period after market close as well as stocks that trade for the full after-hours period. This can result in higher transaction costs for investors.
Finally, the lower volume will often manifest itself in much higher volatility than the regular session. Generally speaking, keeping a close watch on your trades in the after-hours is good. The higher volatility during this time does not lend itself well to the set it and forget it mode of trading!
What times are the different market trading sessions?
Trading the stock market after-hours simply means making trades outside the normal day trading session. This is the period after the stock market closes for the day session and during which traders can buy and sell stocks. When you see “after hours,” this refers to the time outside these regular trading hours, taking place between 4:00 PM and 8:00 PM Eastern Time. The New York Stock Exchange (NYSE) and Nasdaq both have after-hours trading sessions from this time. But there are more trading sessions.
The regular trading session hours are Monday through Friday, 9:30 AM to 4 PM eastern time. However, investors and traders consider there to be three market sessions, including the regular hours:
- The pre-market session that trades from 4 AM to 9:30 AM Eastern Time
- The regular market session that trades from 9:30 AM to 4 PM Eastern Time
- The after-hours session that trades from 4 PM to 8 PM Eastern Time
If you’re trading futures, there’s a completely different schedule though as futures trade Sunday through Friday, 23 hours a day.
How Could I Trade in the After-Hours Market?
If you’re unable to trade options in the after-hours market session, an alternative is to use limit orders to position yourself for the next day. Let’s look at some common order types for this strategy.
For example, if you wanted to enter a call option or put option on a particular stock, you could place a limit order for your selected price and it would be effective on the market open the next day. If your limit price is reached on the order, it may be filled but there’s no guarantee. Placing a market order during the regular session would guarantee a fill, however, the price is not certain.
If you’re already in an option position and want to exit, you could place a stop limit or stop (also referred to as a stop market). A stop order will become a market order when your price is reached. A stop guarantees the order will fill as a market order is placed when the stop price is triggered. A stop limit guarantees the price you specified, but not that it will be executed (as the price could move right through the limit without executing)
Unless it’s an extremely liquid security like SPY where the bid-ask spreads
are small, often only $0.01, it’s safer to use a limit order over a market order for an options trade. Limit orders are usually going to be preferable to market orders as an alternative strategy for playing the after-hours trade strategy.
This strategy has the inherent risks of the market moving too fast in either direction, causing either a missed trade on a limit order or a bad fill on a market order. It’s often better to wait for the market open of the regular trading hours session, evaluate the current price action, and then enter a trade accordingly.
Summary: Trading Stock Options After-Hours is Limited
Stock options are financial products that allow you to buy or sell shares of a company at a set share price, called the strike price, on or before a certain expiration date. Options utilize leverage and can be used to hedge against risk or to speculate on the future direction of a stock. The prices of options can be affected by many factors, including the overall market conditions, supply and demand, and news events.
As a rule, options are only traded in the normal trading session during regular stock market hours and cannot be traded in the after-hours except for a small, limited number of index and ETF options that trade for an extra 15 minutes at the end of the regular session.
Outside of normal market hours, the only way to trade most options is to place after-hours orders using limit orders, stop orders, and/or a trailing stop order.
WealthLed, Copyright 2020 - 2022, All Rights Reserved. WealthLed does not offer any personal financial advice or recommend the purchase or sale of any security or investment for any specific individual. Nothing in this article should be considered personalized investment advice and is for educational purposes only. Additionally, WealthLed has advertising relationships with some of the offers listed on this website. We may receive compensation when you click on links to those products or services.
