Nasdaq Lists New Options Expiries: What This Means and Why It Matters

The Securities and Exchange Commission recently approved a Nasdaq proposal that will give options traders more flexibility and control over their investments on Qualifying Securities.

Nasdaq’s proposal introduced Monday/Wednesday expiration dates for options on a list of Qualifying Securities, which include the Magnificent Seven stocks — Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA) — as well as Broadcom (AVGO) and the iShares Bitcoin Trust ETF (IBIT).

With the SEC’s greenlight on Jan. 26, Nasdaq can now list options expiries for these securities on Mondays and Wednesdays, in addition to their typical Friday expirations. Single-stock options have typically been limited to Friday expirations, with an exception for certain ETFs such as the SPDR S&P 500 ETF (SPY), Invesco QQQ (QQQ) and iShares Russell 2000 ETF (IWM), which trade with daily expiries.

David Barrett, Nasdaq’s Head of U.S. Options Product Strategy, sat down with the Nasdaq Newsroom to discuss these changes and the benefits it affords to market participants.

Q&A with David Barrett, Nasdaq’s Head of U.S. Options Product Strategy

Nasdaq Newsroom: Before this new SEC approval, what was the previous state of play when it comes to expiries?

David Barrett: Previously, there were eight instruments that were allowed to trade intra-week expirations. Expiries on the SPY, QQQ and IWM, which are the index ETFs, could trade every day. Additionally, the GLD, which is the gold ETF, the SLV, the silver ETF, and the TLT, the 20-year Treasury ETF, traded on Monday and Wednesday expirations along with the regular Friday expirations. ETFs on oil futures (USO) and natural gas (UNG) traded on Wednesday and Friday expirations. All other contracts traded on Friday expiries on either a weekly or monthly cadence.

Nasdaq Newsroom: Why have Friday expiries been the norm?

David Barrett: It used to be that expirations were only quarterly occurrences. Then, some of the more heavily traded options went to a monthly cadence, and for those that retained a quarterly cadence, they were around their underlying’s earnings dates, so the expiries would generally encompass the earnings date. Weekly expiries started to appear in the 2010s, and the Monday-Wednesday-Friday cadence for SPY and QQQ — heavily liquid ETFs — kicked off around 2016.

In terms of why Friday (as opposed to another day), a lot of it had to do with the historical structure. Clearing processes needed to take place over a weekend because computer processes weren’t as fast.

Nasdaq Newsroom: How does the recently approved change benefit investors?

David Barrett: There’s a whole host of reasons.

First, it’s just a clear investor preference — [traders] do prefer to trade in shorter-dated options. Every time there’s been a shorter-dated option listed, the volumes have spiked in that. It has not cannibalized the other volumes too.

Second, options that are shorter dated tend to be more efficiently priced. When you think about any insurance instrument, the bigger the time window, the more potential there is for an untoward outcome, and so market makers have to take that into account. Consequently, the prices tend to be a bit less efficient.

Nasdaq Newsroom: How did you pick which securities could participate in this expiry program?

David Barrett: We want to do this responsibly — we want to ensure that the most liquid securities are the ones that are traded this way and that there’s always a competitive price for a retail investor. That’s why we picked a stringent series of qualifications that a security had to meet to get into this program.

There were 4 qualifications that we filed with the SEC to become part of the program:

The first was a $700 billion market cap for a single stock, or $50 billion in assets under management for an ETF, on the last day of the prior quarter.

Qualification number two was that it has to have traded 10 million sides in the preceding month to the quarter end. So, in December, in March, in June, and in September, we’re going to look to see if it traded 10 million sides.

Third, it has to have a 250,000-lot position limit, as listed on the OCC’s website.

Finally, it has to be part of the Penny Interval Program. Certain options on stocks and ETFs that meet the Penny Interval Program eligibility requirements trade in minimum price increments of a penny. Other options on stocks and ETFs trade in minimum price increment of a nickel. There are about 300 options that trade in a minimum price increment of a penny.

Nasdaq Newsroom: What’s next for expiries?

David Barrett: The trend is always going to be towards instrument expansion, but we want to do it in a thoughtful way that maintains investor protection and market quality.

Customers are saying that they want risk profiles that are more defined to the short end of expirations. They probably want that in more securities than we’re currently listing, so there could well be an expansion of this program at some point.

Again, it will be deliberate and it will be based on where real customer demand exists. And, no matter what, it will be done in such a way that we’re acting responsibly for both our customers and our industry partners.

To learn more about the new options expirations, watch a recent webinar on the topic with Nasdaq Head of U.S. Options Sales Tanya Patwaa.

Options involve risk and are not suitable for everyone. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies may be obtained from your broker, one of the exchanges or The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, IL 60606 or call 1-888-OPTIONS or visit www.888options.com. An investor should review transaction costs, margin requirements and tax considerations with a broker and tax advisor before entering into any options strategy. Any strategies discussed are strictly for illustrative and education purposes and are not to be construed as an endorsement, recommendation or solicitation to buy or sell securities.