FROM the CBOE website :

Can you explain options trading in penny increments?


In early 2007, the option exchanges began a pilot program to trade options in $.01 increments. The pilot included 13 stocks and exchange-traded funds (ETFs). The $0.01 increments were available for options with a quoted price of less than $3. Options with a quoted price above $3 were available in nickel ($0.05) increments. All IWM, SPY and QQQ options, however, were quoted in $.01 increments.

Since its initial rollout, the penny pilot program has been expanded to include well over 350 securities. Please note that all of the exchanges have the ability to provide executions in penny increments.
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What I am having a bit of trouble with, is fully understanding the way in which the Penny increment Options are based on / calculated.....

1. Does this refer to the prices between the bid x ask being in .01 cent increments ?


2. And does this referring to only those Options whose difference between the Bid x Ask does not exceed a $1 ?


3. Are the stocks with these Penny increment Options, prone t being more liquid and tighter spreads between the Bid x Ask than other stocks/options ?


Thanks - Michael

It means the bid/ask can move up and/or down in 0.01 increments. It's not a guarantee that the spread will only be 0.01 wide. It's not necessarily an indicator of increased liquidity, but since it increases price efficiency it will help promote increased liquidity than if it were still trading at 0.05 increments.

Thank you shodson for the explanation,
This is what my main question regarding Penny increment Options pertained to

I pulled up stocks that were listed under this category on TorS and noticed that they weren't " solely " .01 cent increments within the bid x ask , so I knew I was missing something

Thank you for clarifying