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Why do some options trade in 5 cent increments?

Personal Finance & Money Asked by AaronLS on January 31, 2021

SPXU appears to not be effected by TSPP, as I see bid ask prices for penny increments. I’m not sure any other definitive way to tell without actually attempting to enter an order.

However, options for SPXU are limited to 5 cent increments. Why is this?

Is there a way to easily tell if something is TSPP without scanning bid/ask prices or attempting a trade?

By TSPP I mean tick size pilot program that sets a 5 cent increment for small cap stocks. I’m only guessing this is why these options are limited this way.

2 Answers

You are correct that the Tick Size Pilot Program is the cause of the changes you are seeing.

FINRA has an explanation of the program and a important date schedule and likely of use to you a ticker level rollout list.

I hope that helps.

Answered by rhaskett on January 31, 2021

Stock Options are either show displayed prices in pennies or nickels. The SEC started a Penny Pilot Program in 2007 which allows exchanges to list certain options with displayed prices in penny increments rather than nickel increments. Each exchange publishes a list of the symbols that are in the Penny Pilot, and they are updated from time to time.

However, that is not to say that nickel priced options cannot be traded in penny increments. Both BATS and NASDAQ Options have order books which accept orders priced in penny increments (though they will round up the displayed price to the nearest nickel increment for names that are not in the penny pilot program). Other exchanges also offer auction mechanisms allowing transactions to occur in pennies rather than nickels (such as BOX's Price Improvement Process).

Answered by xirt on January 31, 2021

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