Pre-market trading is gaining popularity, but does this apply to options traders as well? Can you buy options in the pre-market, and if so, what are the limitations? While stock options aren’t available, can you buy options in the pre-market for indexes like SPX and VIX? The answer is yes, but with notable challenges. This article unpacks what traders need to know about pre-market options, including buying and selling possibilities.
Key takeaways
- You can buy options during the pre-market, but not on stocks. Only options on indexes are available during the pre-market phase.
- Considering that the regular trading session for stocks goes from 9:30 AM to 4:00 PM ET, and that some index options (like SPX and VIX) are available for trading almost 24 hours a day, we can define the pre-market phase for these options as beginning at 12:00 AM ET and ending at 9:25 AM ET, right before the regular market opening.
Pre-Market Options Trading – Is It Possible?
Yes, you can buy options during the pre-market, but it’s not as straightforward as trading shares. Stock options are not accessible, while some index options like the VIX or SPX are available for trading.
While the situation may change in the future based on the demand of investors (e.g., a few years ago, we did not have weekly options expiration for every stock, but the market has evolved), the current reality is that investors can only trade options on stocks during regular market hours.
Challenges with Stock Options
There is no pre-market trading for stock options. Additionally, there are significant challenges to changing that:
- Low Liquidity: Pre-market trading lacks sufficient participation, making it nearly impossible to find buyers and sellers for stock options. Wide bid-ask spreads and the inability to execute market orders make trading impractical.
- Role of Market Makers: During regular hours, market makers play a crucial role in ensuring liquidity by stepping in to balance trades. In the pre-market, however, market makers avoid taking on directional risks, which further eliminates any possibility of meaningful trading in stock options.
- Impact of Stock Liquidity: Stock options are derivatives, meaning their feasibility depends heavily on the liquidity of the underlying stock. If the stock itself has limited activity during pre-market hours, its options become virtually impossible to trade.
Options on Indices – The Exception
Unlike stock options, some index options like SPX and VIX are available almost 24 hours a day, five days a week (and you may find several options on index-based ETFs on our options screener). These offer a unique alternative for traders who want to trade options outside regular market hours.
- Global Participation: SPX and VIX options have higher liquidity, thanks to worldwide trading.
- Flexibility: These options allow traders to manage positions or respond to global events before the regular U.S. market opens.
While it’s tempting to ask, “Can you trade options in the pre-market?” or “Can you sell options during the pre-market?”, it’s important to recognize the practical limits. For stock options, the answer is no, but index options provide an interesting exception for pre-market opportunities. Make sure to weigh liquidity and risk before attempting these trades, as the disadvantages mentioned above are still present.
Is It Safe to Trade Options in the Pre-Market Phase?
We don’t like using the word “safe” when talking about derivatives trading, so let us share some key risks and challenges of trading options in the pre-market phase. To answer the question directly: for the limited range of options available during the pre-market phase, you’ll generally find your trading activity riskier.
Why Pre-Market Trading Can Be Risky
There are at least three reasons why trading options during the pre-market phase can be risky:
- Lower Liquidity: With fewer participants, pre-market trading lacks the liquidity seen during regular hours. This leads to wider bid-ask spreads, making it harder to secure fair prices.
- Inefficient Pricing: Limited trading volumes mean less price discovery. This can result in inefficient or inaccurate pricing of options, increasing trading difficulty.
- Higher Uncertainty: Lower activity among market makers means fewer safeguards to maintain balanced markets, which can amplify risks for individual traders.
More practically, this means that you’ll face two issues when trading options in the pre-market:
- Price Discrepancies: The limited pre-market volume might create price inconsistencies that get corrected when regular trading begins.
- Directional Risk: Without major institutions actively trading, moves in the pre-market can often be misleading.
If you’re wondering, “Can you buy options in the pre-market?” or “Can you sell options during the pre-market?” the answer is technically yes, though with significant limitations. Options trading isn’t gambling, but pre-market trades often feel like a higher-risk bet due to these variables. Do options trade in the pre-market with sufficient liquidity? That remains a key challenge.
Pros and Cons of Pre-Market Options Trading
Pre-market options trading offers unique opportunities and notable challenges. Here’s a table summing up the pros and cons of pre-market options trading:
| Pros | Cons |
| Flexibility to react to news | Lower liquidity during pre-market hours |
| Access to nearly 24/5 index options | Wider bid-ask spreads increase costs |
| Adjust positions quickly overnight | Limited market maker participation |
Pros
- Flexibility: Pre-market options trading allows traders to respond to global or overnight events that may impact prices before the U.S. market opens.
- Access to Index Options: Unlike stock options, certain index options like SPX and VIX are available almost 24/5, providing a reliable choice for pre-market participants.
- Opportunities for Quick Adjustments: Traders who need to hedge or adjust positions based on overnight market changes can find this flexibility valuable.
Cons
- Reduced Liquidity: With fewer participants in pre-market hours, liquidity is significantly lower. This leads to wider bid-ask spreads, increasing transaction costs.
- Higher Costs: The wider spreads mean traders could pay more to enter or exit a position compared to regular hours.
- Limited Market Maker Participation: Without active market makers, it’s harder to find counterparties for trades, further limiting opportunities.
Is Buying Options in the Pre-Market Worth It?
If you’re asking, “Can you buy options in the pre-market?” or “Can you trade options in the pre-market?” the answer is technically yes, but we never recommend it. While some traders may find the flexibility and global responsiveness of pre-market trading appealing, the risks—like low liquidity, inefficient pricing, and higher costs—often outweigh the potential benefits.
To be honest, we don’t trade options during pre-market hours 99.99% of the time.
For most (us included), it’s better to stick to regular trading hours, especially since the question, ‘Do options trade in the pre-market?’ often leads to disappointing answers. Whether you choose to buy, sell, or trade options during the pre-market ultimately depends on your strategy and risk tolerance. Always weigh the pros and cons carefully before deciding.
