Mini Options See 'Respectable' Start

--Mini options debut, allowing investors to make smaller wagers on movements of pricey stocks

--Contracts trade on Apple, Amazon.com, Google, SPDR Gold Trust and SPDR S&P 500 ETF

--Apple and SPY mini options are more active than 94% of other options in the market

 
   By Kaitlyn Kiernan 
 

NEW YORK--"Mini" options made their debut Monday, allowing investors to wager on the direction of pricey stocks such as Apple Inc. (AAPL) for about one-tenth of the investment of a standard stock option.

Some investors with relatively small amounts of cash have had a hard time taking positions in companies like Apple, whose stock trades for about $450 a share. Options on which way a stock will move often offer a cheaper way to wager, but standard options are tied to the delivery of 100 shares. The new, smaller options are tied to just 10.

The options market "in general is a place where individual investors really want to be involved. But for some of these companies that just don't split their stock [to trim the share price], it has become very difficult," said William Lefkowitz, options strategist for vFinance. "A lot of the [individual] investors I work with are very interested in these. This is their opportunity to play with, invest in and speculate on these high-priced stocks."

The mini options launched Monday are tied to five highly liquid, high-priced stocks and exchange-traded funds. Initially, the contracts are available on shares of Apple, Amazon.com Inc. (AMZN), Google Inc. (GOOG), the SPDR Gold Trust ETF (GLD) and the SPDR S&P 500 ETF (SPY).

Options contracts allow an investor to buy or sell shares of stock at a set price by a designated date. They typically trade at a cost that is far less than the price of a share itself.

In the case of high-priced shares, like the $800-plus stock of Google), one standard options contract would be tied to $81,430 worth of stock, based on Friday's closing stock price. A mini option on Google would be tied to $8,143 worth of stock. With commissions and fees, the mini options are liable to cost slightly more than one-tenth of a traditional options contract.

For an investor with a smaller brokerage account, a contract with a smaller underlying value allows greater flexibility. Where an obligation to buy or sell stock worth more than $80,000 might be too high, preventing an investor from being able to trade a traditional Google option, the $8,000 value of a mini might be more manageable.

"These are great for somebody who has wanted to trade, but maybe has a smaller account and would like to trade options that take up a smaller percentage of their account," said Joe Kinahan, chief derivatives strategist at TD Ameritrade.

As of late afternoon Monday, more than 18,000 mini options contracts had been traded. Apple mini options led, with 7,979 contracts. SPDR S&P 500 and the Gold ETF minis were the next most popular, with 5,375 and 3,770 contracts traded, respectively, according to options-data firm Trade Alert.

Amazon and Google mini options lagged behind, with volume of just 825 and 413 contracts, respectively, according to the data.

SPY options are typically among the most actively traded of the day. Over the past month, SPY has averaged 2.6 million contracts traded daily. Traditional Apple options average about 550,000 contracts traded daily, while GLD averages 206,000 contracts.

"It is a pretty respectable start, especially given that it takes brokers and liquidity providers time to get their systems started," said Henry Schwartz, president of Trade Alert. "Since there is a segment of the market that this is a really good product for, I think they will really catch on. It's just a matter of time."

The Apple mini-options volume was strong enough to make it the 212nd-most-actively traded option by underlying security--more popular than 94% of the other options on the market. Options trade on 3,854 stocks, ETFs and indexes. SPY minis were the 273rd-most-actively traded options as of midday Monday.

NYSE Euronext's (NYX) two options exchanges, Amex and Arca, were leading in trading volume early Monday. About 3,099 contracts traded on the Amex exchange, while 6,007 contracts traded on Arca, a total of about 52% of overall mini options volume. In broader options trading, those two exchanges accounted for a combined 26% of trading volume.

Arca was one of the first two exchanges to ask the Securities and Exchange Commission for permission to trade mini options. Deutsche Boerse AG's (DBOEF, DB1.XE) International Securities Exchange was the other exchange operator that worked with the SEC to develop the smaller options. ISE saw 2,217 contracts change hands, 13% of the mini options volume.

Nasdaq OMX Group Inc.'s (NDAQ) Nasdaq Options Market saw 15% of the trading volume, while the remaining 20% was divided among CBOE Holdings Inc.'s (CBOE) Chicago Board Options Exchange and its C2 exchange, and the Boston Options Exchange.

"The biggest thing is that this product should be 'additive.' It should bring in new customers," said TD Ameritrade's Mr. Kinahan. "Many of the new products recently have been taking volume from one bucket and putting it in another bucket, but hopefully this will increase the size of the pie."

Trading in traditional Apple options Monday was on pace with the daily average over the past month, according to Trade Alert data. But trading in traditional SPY, GLD, Google and Amazon contracts was projected to finish slightly below the average, according to the data, with volume currently on pace to finish at between 80% and 86% of the daily average.

It was a slow day of trading for the overall options market, with total volume on track to finish at just 89% of the average.

Write to Kaitlyn Kiernan at [e-mail]