Trading options after hours can seem like an appealing strategy. Instead of limiting yourself to trading while the markets are open, trading options after hours would allow you to place orders around the clock. Despite the appeal, trading outside regular market hours generally isn’t possible. However, there are a few exceptions that let you trade minutes or even hours after the market closes. Consider these strategies if you don’t want to be at the whim of the market’s operating hours.
What is after-hours trading?
After-hours trading refers to any trading activity that takes place after the markets close. Hours may vary by market, but for U.S. equity markets such as the New York Stock Exchange (NYSE) and NASDAQ, regular trading hours are from 9:30 a.m. to 4 p.m. Eastern. In these markets, after-hours trading generally runs from 4 p.m. to 8 p.m. Eastern.
After-hours trading can also include pre-market training, which is any activity that takes place before the markets open. For the NYSE and NASDAQ, pre-market trading typically refers to trades from 4 a.m. to 9:30 a.m. Eastern during the week. However, this varies by broker. For example, some online brokers may only give you access to pre-market trading after 7 a.m.
After-hours trading uses electronic communication networks (ECNs) to match buy and sell orders. Thanks to these networks, it’s possible to trade without needing a traditional exchange. With the help of ECNs, everyday traders and investors can place trades while the market is closed, perhaps in response to a news story or development at a particular company.
Can you trade options after hours?
You generally can’t trade options after hours. For instance, you typically can’t trade stock options while the markets are closed. When making trades for individual stock options, consider placing your orders by 4 p.m. Eastern if you want the order to go through on the current day.
While this limits potential trading for active traders after hours, there are still a few ways to trade options outside normal market hours.
One possibility is ETF options, as there are several you can trade until 4:15 p.m. Eastern instead of 4 p.m. This includes popular ETFs such as SPDR S&P 500 ETF Trust (SPY), Invesco QQQ Trust (QQQ) and iShares Russell 2000 ETF (IWM).
You can also trade options for the S&P 500 Index (SPX) and VIX, which are proprietary products from the Chicago Board of Exchange (CBOE). Normal trading hours for these options are from 9:30 a.m. to 4:15 p.m. Eastern. However, it also has global trading hours which last from 8:15 p.m. Eastern to 9:25 a.m. Eastern the following day.
Who can trade options after hours?
Options trades generally take place while the markets are open, with only a few exceptions extending after hours. However, those trades only allow you to trade until 4:15 p.m. in most cases. Generally, no one can trade options after hours apart from the narrow set of exceptions highlighted above.
Even institutional investors generally cannot trade options outside these hours. One way to address this limitation is to schedule an order for the next day. With this approach, your order will generally be executed at market open at the next available price.
Given the limitation of trading options, one potential alternative is trading futures contracts. While futures and options are not the same, you can trade futures almost 24 hours a day, from Sunday evening until Friday afternoon. Depending on the market, there are usually short breaks at various times.
In addition, online brokers often support after-hours trading for ordinary stock trades. For instance, Charles Schwab has after-hours trading sessions from 4:05 p.m. to 8:00 p.m. Eastern. In addition, the broker also supports 24-hour continuous trades that expire at 8 p.m. the next day.
A handful of other online brokers — Robinhood, Interactive Brokers and E-Trade — also offer 24-hour trading on some of the most popular stocks and funds.
Should you trade options after hours?
There are several reasons you may want to trade options after hours, such as a breaking news story or when you’re traveling internationally. Although there are valid reasons for considering an after-hours trade, there are reasons to be cautious when considering such a strategy.
For example, there are always fewer trades being executed during off hours. As a result, there is usually a larger bid-ask spread, which can lead to difficulty in fulfilling orders. This can also make it difficult to price options accurately.
Also, consider the fact that firms facilitating trades between buyer and seller are typically not active after hours. This can make it very difficult to match buyers and sellers effectively.
Bottom line
Because of these challenges, after-hours options trading may be best left to the most experienced traders. However, after-hours trading is also limited in scope since you can only trade options until 4:15 p.m. For most traders, the best approach may be trading options while the markets are open or considering an alternate strategy, such as futures trading or buying single stocks.
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