In a significant shift in trading rules, major Wall Street exchanges have reduced the waiting period for options trading on newly listed companies from four sessions to two. This change, which took place quietly over the summer, reflects the growing importance of options trading in capital markets, with volumes having doubled since 2019.
This revised rule was evident in recent large initial public offerings (IPOs) of Arm Holdings (NASDAQ: ARM ) PLC, Maplebear Inc. (also known as Instacart), and Klaviyo, Inc. Each company saw options trading commence just two days after their shares began trading.
The change in the trading timeline enables investors to access additional data earlier, thus facilitating more informed decision-making during a company's initial trading days. It also provides insights into market sentiment, which can be particularly useful during the often volatile early stages of a stock.
The new entrants attracted substantial interest from traders. For instance, Instacart drew about 23,000 options contracts two days after its shares started trading. These contracts were nearly evenly divided between calls, predicting a stock rise, and puts, preparing for a decline. Arm experienced even greater activity on its first day of derivatives trading with volumes triple that of Instacart's, predominantly favoring bearish bets. Klaviyo saw relatively less interest with approximately 1,000 contracts on its first day, despite having a similar market capitalization to Instacart.
This modification in the trading timeline was prompted by an increase in large new listings during 2020 and 2021, despite a slowdown in the number of overall IPOs. The industry sought faster listing of options than previously allowed, provided that listing criteria were met.
Nasdaq, Inc., which operates six U.S. options exchanges, stated that both investors and liquidity providers agreed that shortening the timeframe would be advantageous for larger new issuers.
To implement these changes, Nasdaq and other exchanges filed with the Securities and Exchange Commission in the summer. However, there are restrictions: a company must have a market capitalization of at least $3 billion for its options to be eligible to trade within two days of the shares starting trading.
While such procedural adjustments may carry potential risks, particularly with speculative instruments like options, early indications suggest share prices did not experience increased fluctuations when options began to trade. For example, neither Instacart nor Arm saw significant price swings in the first few days of options trading.
This change provides investors with tools to assess overall market sentiment by examining open interest, put/call ratios, implied shares to be sold, volatility trigger zones, gamma tilt, and more.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.