Can You Do Options Trading After Hours?
Last Updated: January 10, 2023 • 8 min read
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Options trading involves speculation made by the investors on the direction of the overall stock markets in the future. However, it may also involve individual securities including bonds and stocks. An option is a tradable contract. The investor speculates on the price of the asset and whether it will be higher or lower at a certain time and date in the future. The investor/trader is not required to buy the asset but speculates and trades on the direction of movement of prices only.
After Hours Options Trading - Is It Possible
Yes, it is. After hours trading in options is trading once the stock markets have closed. If you have a brokerage account and a schedule (and time) for trading, you can trade the options even when the stock market is closed. In the standard or traditional stock exchanges, you cannot indulge in market activities once the stock market is closed.
When you have an online brokerage account, you can log in to the portal anytime you want, and even in the after hours. Once you have found your AMD, you can click on the buy option. Subsequently, the order will be received by the cloud and the online trading network. You will receive a notification once the network finds the seller. The network that makes online transactions possible is called Electronic Communications Network or ECN. Many trading platforms nowadays allow after hours trading on both websites and smartphone apps, apart from offering investment advice.
For the uninitiated, the stock market's regular hours are from 9:30 a.m. through 4:00 p.m. Eastern time Monday through Friday. Earlier, stocks and other kinds of investment and security options were traded during the standard or regular trading sessions hours (also called regular trading hours). Things started to change with the introduction of the global stock markets which gave investors and traders many more options to trade. You can now trade for the options in NASDAQ as well as the New York Stock Exchange from 4:00 pm to 6:00 p.m. Afterhours trading is only possible for online traders (including the managers of mutual funds and institutional investors), as each transaction is accomplished over the internet only.
Trading options for the After-Hours Market
Traders and investors can use their computers or smartphones for trading options after hours, apart from regular market hours. First, they must create an order specifying whether they want to buy or sell options on whatever options trading platform they are using. The order will include all the specifics including the number of shares to be traded, and the price and time of the trade. Computers and mobile devices connected to the Internet will match the order against the other standing orders and will accomplish the transaction based on the match. However, the order will not be executed in case there is no match at all.
Types of Orders for After Hours Trading
Some traders may wonder "Can you sell options after hours?". The fact is that there are different kinds of order mechanisms available through which you can buy or sell options after hours.
After hours trading involves many different order types for the hours sessions once the market is closed. The distinct types of order mechanisms may have their own set of execute, stop, time, and other conditions. Below are the order types that are used for extended hours sessions or extended hours trading.
Limit Orders: in the limit order type for options trading, the trader will set the limit price and the date (the next day or any other date) before which they will purchase a share. The trade will be executed when the price of the share and option equals the set price or dips below it. However, the order will not be executed when a match is not made within the specified time (expiration date). Therefore, unlike standard trading during market hours (that involves market orders), the limit orders are only used in after-hour trading. The limit orders provide greater control of the traders and help them control their losses.
GFD/GTC Orders: after hours trading also uses the GFD (Good for Day) and GTC (Good till Cancelled) orders. A GFD order is used for trading during both market hours as well as after hours. It will be canceled automatically once the trading session is over. GTC orders can remain active through multiple sessions and only end once executed or when canceled.
Stop-Loss Orders: similar to the limit order, the trader will set the price of a stop loss order. As the name suggests, these stop orders are meant for reducing or controlling the losses for the traders. The share will be sold automatically when its value drops and reaches a certain price. The low price point (or the reduce priced) is predefined by the investor.
Trailing Stop Orders: in a trailing stop order, the share will be sold automatically once it has acquired and returned a certain amount of profit predetermined by the investor.
When You Need After Hours Trading
After hours trading can be beneficial for options traders who:
- Do not have time to trade in the standard market hours due to any reason, but want to make a move before the following day.
- Want to make profits out of any stock market and financial news, or a piece of investment advice they receive after hours but before the opening bell.
- Are ready to take the inherent risks in exchange for obtaining additional rewards and profits.
Orders that Cannot be Fulfilled After Hours
Certain marketplace orders cannot be fulfilled at the time the stock market and exchange are closed. These orders include the following.
- Fill-or-Kills orders: these orders will be fulfilled immediately or not at all. Such orders cannot be placed after hours.
- All-or-None orders: these orders must be fulfilled entirely at a date predetermined and specified by the trader.
- Immediate-or-Cancel orders: this type of order is to buy/sell the entire order or a part of it. Any part remaining will be canceled.
Benefits of Trading After Hours
Trading after hours has its own set of advantages and benefits, which are available to market makers and the individual investor.
- Convenience: When you trade after the closing bell, you can focus on your profession during the daytime. You can avoid the normal trading session for the U.S. markets, and can build up the cash to increase your trading volumes.
- Timing: After hours trading allows you to make profits out of any financial and economic news you receive at any hour. Most companies release their annual or quarterly earnings reports at the end of the market hours sessions only.
- Markdowns: share prices can be more attractive in the after-hours before the next trading day. While there are different rules and trading options for specific hours, you may find some shares to have a better price.
Frequently Asked Questions
Can I trade options after hours on TD Ameritrade?
TD Ameritrade offers 24/5 trading which means five days a week outside of market holidays you can trade options after hours on TD Ameritrade.
Can I trade options after hours on Robinhood?
Robinhood offers a pre-market session of 2.5 hours before the market opens, and four hours after trading closes is their extended session.
Can I trade options after hours Fidelity?
Fidelity offers buy, buy to cover, sell or short sale options during their premarket and after hours sessions. The orders you place must be limit orders, the time-in-force limitations have to be day, immediate, or cancel.
Can you trade options after hours Schwab?
Schwab offers orders for after-market trading and the execution thereof between 4:05 and 8 PM EST. The settlement and commission times are the same as a regular session.
Do options trades settle overnight?
Stocks have a typical two day settlement period, and options settle the next day.
Final Thoughts
When you have a good knowledge of the stock markets and how online trading platforms operate, you can trade after hours easily and is a great way to achieve your investment objectives. After hours trading can help you make profits from market activity, markdowns, and financial news, while also being more convenient for you.
This article is not financial advice, when trading options there is a risk of loss and the past performance of a security is not indicative of future gains.