Last updated on August 7th, 2022 at 08:26 pm
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Call and put options are popular among investors who want to decrease their investment when trading stocks. You can trade options when stock markets are open. But can you buy calls or put options premarket?
You can’t buy calls or put options premarket. Unlike stocks, options can only be traded when the market is open.
Options don’t trade premarket because there’s little demand for them, and if investors could buy options premarket, the trades would be extremely risky and the spreads very wide due to the market’s volatility.
This article will explain what premarket trading is and why you can’t buy options premarket. There are also some resources you can use to learn more about trading options and premarket trading.
Understanding Premarket Trading
Most securities are traded when the markets are open, which varies based on what is traded on each market and what country they are being traded in. However, you can also trade a limited number of securities, like stocks, during pre and post-market trading hours, which allow investors to trade when the market is closed.
For example, the United States stock market trades from 9:30 AM to 4 PM Eastern on weekdays except for holidays. Premarket trading is usually open for a few hours before the market officially opens, sometimes starting as early as 4 AM or as late as 8 AM.
Trading premarket has some advantages and disadvantages compared to trading during standard market hours.
The number of securities traded premarket is extremely low, at least relative to the number of securities traded during the official opening hours of a market. Since such few trades are occurring premarket, there is little to draw more investors to premarket trading.
However, there are certain times when premarket trading increases compared to its normal volumes. The biggest cause of this is when a company or political news affects the stock price.
Some of the most popular stocks also trade premarket such as those on the S&P 500 or Dow Jones.
There’s still a risk to trading premarket regardless of the volume. As soon as the market officially opens, prices can fluctuate as more trades begin to happen.
This increase in volume poses a risk to everyone. However, this is especially true for premarket traders because of the possibility of extreme fluctuation.
The market usually settles about an hour or so into its opening as the trading volume becomes more consistent, and premarket traders are unable to take advantage of this change.
Trading premarket gives investors an advantage when there’s news that affects stock prices, but they also face some risk because of the low trading volume.
Why You Can’t Buy Options Premarket
Unlike some securities like stocks that you can trade premarket, options can’t be traded, including buying and selling call and put options.
There are a few reasons that you can’t buy options premarket. The first is that there’s little demand to do so. Not many people want to trade options outside of standard market hours.
The lack of demand is partly because it takes a lot of research and patience to trade any options, and doing it when the market is closed would be even harder.
Furthermore, markets are very volatile premarket. The high volatility is part of the reason that very few people want to buy options premarket. Prices can fluctuate tremendously during the premarket part of the day and even during the first hour when the market is open.
Any trades made at this time are risky since the price or value of a stock could fluctuate drastically.
Since premarket trades are so volatile, it’s for the best that you can’t buy options during it. As soon as markets open each day, you can buy and sell options and continue to trade them until the market closes.
As mentioned above, the first hour that the market is open, and the last hour of the trading day, are also risky times to buy and sell options.
Investment brokerages don’t let you trade options premarket, even if you wanted to, and this is a rule that you follow when you sign up to trade with a majority of brokerages.
For example, TD Ameritrade states that bonds, mutual funds, and most options don’t trade during extended-hours trading sessions. Orders for ineligible securities will be canceled or rejected.
Learn More About Options And Premarket Trading
If you want to trade options or trade other securities premarket, you must understand how they work and what makes a successful trade. These resources will teach you more about premarket and options trading.
- Night Trader The Overnight Trade: This is a short, easy-to-understand book that explains how you can benefit from premarket trading and how trading and analyzing markets at night can make a big difference.
- Byron McGrady Options Trading For Beginners: If you’re a beginner at options trading, this book will teach you everything you need to know to get started. You’ll learn the types of options tradings, the advantages and disadvantages of trading options, and how to avoid traders’ common mistakes when trading options. There are also some examples you can read through.
- Nathan Real Options Trading Strategies: Once you’re familiar with how options trading works, you need to have a strategy when you start trading. This book teaches you how to analyze and employ strategies for options trading. You’ll also learn how to define your option prices and place orders for different trades.
This video from Option Alpha on YouTube explains how you can make the most of premarket hours even when you aren’t able to actually trade your options during this time:
You can’t buy or sell call options or put options premarket. There’s not enough demand to trade options premarket, partly because it’s a volatile time to trade anything.
When you trade options, you need to know how they work and how the market is doing when you trade. Only the most proficient traders would successfully trade options premarket, and even still, they would face extremely high risk.