What Are Mini Options?
Mini options are types of contracts in which the 10 shares of a stock or exchange-traded fund (ETF) serve as the underlying security. This is the primary difference between standard options and mini options. Normally, standard options use 100 shares as the underlying security.
Mini options are currently unavailable for ETFs of single stocks, but the mini options on indices can still be used. Also known as E-options, mini options are exchange-traded option contracts, and they are a fraction of the value of the corresponding standard option contract.
The mini options are most of the time found listed on benchmark indices, whereby an E-mini index is the underlying asset feature. It is not possible to find mini options listed anywhere other than on major indices. For example, the CBOE’s mini-SPX (XSP) is an option that was launched in 1997.
It was put in place to make tracking the underlying S&P easier. There is an array of mini index options available, and most of them presently trade on the S&P 500, Russell 2000, and Nasdaq 100.
If you’re getting started on trading stocks, you must be well versed with mini options and how they work. In this comprehensive article, we have shared everything you need to know about mini options and the essential purposes they serve.
To get as many details as you can, we recommend reading this piece in its entirety. Also, as a team, we are available to answer your questions in case you have a few things that need further clarification.
Why Were Mini Options Introduced?
If you’re just getting started on stocks due to high stock prices, it might be hard for you, as a small investor, to afford shares. Because of this, there was a need to come up with fairways to enable beginners to afford small shares. This led to the mini option.
The mini options were designed to enhance interest among investors as many of them lack the huge sums of money to afford 100 shares of the high-profile stocks. This new type of option was introduced to let investors own less than 100 shares and increase the number with time.
The number 10 is the contract multiplier that is used for strike prices and premiums in mini options. For instance, if an investor purchases one ABC7 call mini option at a 300-strike price for the quoted price of 5.50, the purchaser would end up paying 5.50x $10=$55 (excluding fees and commissions).
If you opt for the standard option with at least 100 shares deliverable, on the other hand, a multiplier of 100 alongside a quoted price of 5.50, you will end up paying $550. It’s important to understand that not all stocks have mini options.
In the next section, to help you make the best investment decision, we will help you understand the types of stocks that have mini options. Up to this level, you can now tell that the mini options were introduced to help investors who could not raise the capital that is worth 100 shares.
What Stocks Have Mini Options?
Today, there are only a few companies that provide willing investors with mini options:
1. Apple Inc. (AAPL)
As one of the most successful companies in the world, Apple was founded in 1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne to design and sell personal computers. In 1977, the company was incorporated as Apple Computer, Inc. (shortened to Apple Inc., in 2007.)
The company is known as a brand that focuses on creativity and technology. Since its founding, the company has produced and sold some of the most used electronics worldwide. In 2019, Apple launched three new iPhones: iPhone 11 Pro, iPhone 11, and iPhone 11 Pro Max. It also came up with a unique version of MacBook Air, an updated Mac Pro, and the new Mac Mini.
2. Amazon.com Inc. (AMZN)
Jeff Bezos founded Amazon in 1994 as a site that only focused on selling books. Amazon did not go public until 1997, and each share went for $18 and had a market cap of around $438 million. Today, Amazon is the one company that every business is looking to beat, but they have a lot of work to do to get there.
3. Alphabet Inc. (GOOG)
Google is a subsidiary of Alphabet Inc., which has grown very quickly over the years. The company grew fast and acquired platforms such as YouTube, DoubleClick, and Android. It has a search market that is used in all parts of the world, which means its presence is impossible to ignore.
Google has used a lot of effort to ensure that the internet is made available in various parts of the globe. This is one of the best places to use mini options in case you don’t have enough capital to acquire 100 shares.
What Do You Need to Watch Out for With Mini Options?
Here are some of the things you need to watch out for if you intend to use mini options.
1. Lower Outlay
The greatest perk of mini options is that they need a very low cash outlay, which is around one-tenth of the amount required in the standard option. This makes it easier for investors to acquire shares without having to raise a lot of money.
2. Commissions Are Higher on a Percentage Basis
On the flip side, when trading mini options, at times, the commissions will add up. For instance, if a mini option requires that you use a flat fee of around $10, while the standard contract trades at $10, the commission will work out to 1%.
3. Best for Hedging Odd Lots
Most investors in the industry have odd lots; this means less than the required 100 shares. Most of the time, mini options can be used to hedge the exposures effectively and successfully.
If you’re looking to acquire shares from a company, mini options make it easier to purchase stock. While this option is not available in many cases, you can still find companies that give you the chance to get started in trading stocks. You can start with a low amount of money to let you earn profits as you learn. Be sure to check out the pros and cons of mini options and only give it a try when you’re sure that it’s the best option.