The New Penny Options

Tighter prices should bring more opportunity for more investors and more liquidity, as trade will require smaller market movements to be succesful," says the head of one options broker already employing some penny pricing.

REMEMBER THE HUBBUB OVER THE DECIMALIZATION of stock prices back in 2000? Well, get ready for a little deja vu, because it's coming to the options market early next year.

Options are currently priced in increments of a nickel, which means that a one-tick change in price changes the overall cost of a single contract by $5. (Each contract gives the right to buy or sell 100 shares of underlying stock.) Cutting the increment to a penny means that a one-tick change alters the price by $1,

More aggressive exchanges that help a trader get price improvement on a trade - that is, an increase in the selling price or a decrease in the buying price - are likely to find even greater flexibility in pricing when a contract is priced in the new, smaller increments. The net result should be a cost saving to investors, as well as an oppor­ tunity to turn a profit on smaller price moves.

The Securities and Exchange Commission has man­ dated that a pilot program in penny options pricing get under way Jan. 27, 2007, when 13· underlying stocks will have options offered in penny increments on various exchanges. One of those bourses is the NYSE Arca Options platform (formerly the Pacific Exchange and the Archipelago Exchange, or ArcaEx), which said in October that it would participate in the program.

Why didn't options pricing shift to pennies when the stock market decimalized? The answer is bandv\Tidth. In stocks, you have only one IBM, for example. But with op­ tions you have to contend with multiple strike prices and expiration dates, and also have to display the various puts and calls. A single stock can have hundreds of related op­ tions contracts.

The initial 13 tickers include QQQQ (Nasdaq-lOO Tracking Stock), IWM (iShares Russell 2000 Index Fund), GE (General Electric), MSFT (Microsoft) and SUNW (Sun Microsystems). The pilot program could go on fora year or longer, depending on how quickly any technical issues can be resolved.

In a statement, the NYSE said the "proposed quote­ mitigation plan will significantly reduce overall quote traffic in all of NYSE Arca's options issues, not just those selected for the pilot progTam" and that the ex­ change proposes "to disseminate quotes only in 'active' options series." Because of the smaller price increments, prices will change faster and more frequently, signifi­ cantly affecting the amount of information the bourse can provide. Five other U.S. exchanges will also partici­ pate in the penny-pricing test.

Several online brokers have· already begun to offer new ways for options traders to participate in penny options pricing. For instance, optionsXpress (w,yw.op­ tionsxpress.com) has introduced penny-increment pric­ ing capabilities on certain options spreads. Options spreads are common strategies that help illYestors bal­ ance risk and reward, and involve bU;y'ing seJ!~l1g a combination of two or more different options at once.

"Tighter prices should bring more opportLmity for more investors and more liquidity, as trades ',\,'illl'equil'e smaller market movements to be successful," says David Kalt, chief executive officer of optionsXp1'2sS Holdings.

Interactive Brokers (,vww.interactivebl'okel's.com) is taking the penny pricing a step further and allowing customers to trade options with each other on most contracts, not just the 13 in the test. Only account-hold­ ers can place trades-but even noncustomers can see what's available, since the exchanges require brokers to make the illlormation publicly available.

IE rolled out its penny options-trading system in mid-October, and it's seen a lot of volume and good liquid­ ity, according to Steve Sanders, managing director. '''I'm excited about this one," he says. "This is one of those things that really changes the industry."

Online Broker News: Fidelity Investments (v."vw.fidel­ ity.com) has unveiled its new Trading Knowledge Cen­ ter, featuring interactive video and charting as ,vell as articles, interviews and video transcripts. Paul Graham, senior vice president of Fidelity's brokerage-products group,. says, "Launching as many products as we've done over the last couple of years, we wanted to consoli­ date them and facilitate interactive learning."

The company's primary goal in rolling out the center is to help customers learn to use the new tools, but also to educate them on trading strategies, and how to em­ ploy them with Fidelity's offerings. Students can prac­ tice what they've learned at the end of each module before applying their new knowledge to their account.

The Trading Knowledge Center is accessible from Fidelity's main page by clicking on Investment Products, then on Trading. On the left side of the Trading page is a table of contents; one of the arrows says "Learn about Trading." After clicking on that, hit "Trading Kno,vledge Center" to launch the application.

"We want to give everyone a scalable, seminar-type environment to learn all these techniques and tools," explains Steve Deroian, director of Fidelity's Active Trader Group.

13 Gadgets We Love

The beautiful, the useful and the downright weird (a supersized Swiss Army knife) made the cut when we went looking for gifts that would warm the heart of a gadget freak this holiday season.

All right we acknowledge that no one can buy the ultimate holiday gadget-that cool, reindeer-borne flying sled that rockets Mr. S. Claus around on Christmas eve. But here's a baker's dozen of zippy items fort he earthbound to cons r at gift-giving time.

Sony TAV-LI



Flat-panel TVs are as hot as can be, with prices all the way up to $14,000 for a Sharp 57-inch model. While most are sleek the also is innova­ tive.lt's an all-in­ ane home the­ ater that, when not in use for TV, looks like a futur­ istic, flat speaker. In that mode, you play CDs by slipping them in the top. But press a button and the speaker panel lowers to reveal a 32-inch high-definition LCD TV. The speakers, now under thescreen, simulate surround-sound for TV and DVDs, eliminating the need for tangles of wires and separate speakers. $2,999, www.sonystyle.com



There's nothing like a portable, satellite navigation de­ vice for the car if you own or lease several vehicles. Though some are cheaper than the Garmin Nuvi 660, few are as user friendly or as attractive. The new model has a larger touch­ screen than a predecessor we viewed early this year, the 350, but it's still small enough to slip in a pocket. It comes with North American maps preloaded (foreign maps can be pur­ chased), as well as voice-guided directions, integrated Blue­ tooth for hands-free calling, an MP3 player and optional traffic congestion warnings.
$964, www.garmin.com



Digital SLR cameras-those with the looks and controls of tradi­ tional cameras-used to be horribly expen­ sive, and some still cost well above $5,000. But prices at the lower end have slid enough so that shutterbugs eager to swap lenses and select shutter and lens settings can trade up. The Canon Digital Rebel XTi is an excellent choice. Its 1 0.1-megapixal sensor captures enough detail for high-quality 18-by-24-inch prints, and most Canon lenses are compatible .•
$800 'with one lens, www.canonusa.com



The slim, brushed-aluminum iPod nano, available in a rainbow of colors, gets all the attention. But for those who crave sheer horsepower, Ap­ ple's new 80-gigbyte standard-sized iPod is the most valuable player. It holds up to 20,000 songs or 100 hours of video. Its batteries stay charged for 20 hours when playing music, and 6.5 hours for videos. That make it a good way to sample the growing selection of full-length featu res available for down­ loading at iTunes.
$349, www.apple.com



The new Jabra BT325 earphones unite two of the defining gadgets of our times-the cellphone and MP3 musIc player. Plug it into an iPod or other player and listen to music. But when a call comes in to your Bluetooth-enabled phone, simply push a button; it mutes the music and connects the Jabras to your phone jabras to your phone no wires needed. When your call ends, the music resumes. One catch: The control unit, which includes a built-in micro­phone, is a bit heavy. Unless you have a shirt pocket, it hangs uncomfortably around belly-button level; the connecting wire is too short to allow it to be stored in a side pocket.
$88.95,www.Jabl.a.com.



The man who has everything probably doesn't have a Wenger Giant Swiss Army Knife, a humongous verision of the familiar utensil, it boasts no fewer than 85 pull-out implements, including pliers, screwdrivers, a hex key. can openers, a watch case opening tool, flashlight and telescopic pointer for presentations. It's shaped more like a brick than a conventional knife, which takes some of the fun out of using its toothpick.
$1,200, www.wengerna.com



Toqay's homes tend to include a complicated cluster of different remotes to control every­ thingfromtheTV, the satellite box, the DVD player and theaudiosystem. Logitech's Harmony division makes what is far and away the best lineof universal remotes, all of which can be programmed, via a PC connection to the Internet, to control any combina­ tion of devices. In other words, it can easily do the job of three or four separate remotes. The newest and best model is the Harmony 1000,which boasts a vibrant 3.5-inch touch-sensitive screen that displays the controls.
$499, www.logitech.com



Americans drink 220 million cups of coffee a year at home. But very few of those cups are as hot as they ought to be. To bring out the full taste, coffee should be brewed with water at 200 degrees, a temperature too high for most machines' plastic components. Enter Technivorm, a little-known Dutch company. Its KBT-741 Coffe maker works at the right temperature and deposits the coffee straight into a thermal carafe, thus also avoiding the burnt flavor that comes from java sitting in a glass container on a hot plate. What we had considered an acceptable cup before was suddenly second-class.
$180, www.boyds.com



The Shun Pro line of kichen knives from Japan's Kershaw uses a proprietary blend of the best high-tech steels, coated with titanium oxide and boron carbide. As a result, the blades will hold their incredibly sharp edge for years. Handles are lightweight, com· fortable and equally strong. Just about every shape and size of kitchen knife that you could want is available, but you pay for the superb quality.
$60 for a 5.5-inch paring knife, $243 fOr an 8-inch Chef's knife , www.kershawknives.com



Squeezing orange juice is often messy and slow, but not if you turn to Breville, a company owned by Australia's Housewares International. It makes the best juicer anywhere, the Citrus Press 800. Made of die-cast stain less steel, this machine combines the traditional pull-down lever with a spinning cone that starts automatically and fits just about any sized orange, lemon or grapefruit. Works brilliantly. Looks gorgeous.
$199, www.breville.com.au



For the truly serious gamer-child or adult-on your shopping list, there's the ultimate personal computer: the Falcon Northwest MachV. Let others choose among Dells, HPs and Apples-these built-to-order machines are the fastest and most powerful available for consumers. Mach Vs come with such nice­ ties as Intel Core 2 Duo Extreme processors,two 750-gigabyte hard drives, screamingly fast video card and, on the outside,aluminum casing with automotive-quality paint in colors and designs of your choice. The Mach V's baby brother, the shoe-box-size FragBox 2, is also worth a look. Both will help anyone in need of speed, but the Mach V is clearly more impres­ sive. Up to $10,OOO for Mach V, $2,248 starting price for FragBox 2, www.falcon-nw.com



Sony's new PlayStation 3 deserves all the attention it's been getting-and it's certainly gotten a lot since its be­ lated introduction last month. Kids love it and, while the price might look steep, this machine is actually a bar­ gain. That's because the gaming console does double duty as a high-definition DVD player, using the increasingly popular Blu-ray standard, which Sony pioneered. Most of the standalone Blu-ray players sold at your friendly electronics store go for about $1,000. For those looking to get the most out oftheir new high-definition televisions, the PlayStation 3 could be the answer.
www.us.playstation.com/ps3



If you live in-or have a relative living in an area prone to hurricanes, having a couple of wind-up flashlights is a must. And the is among the best. The Freeplay Xray LED is among the best. The flashlight a "torch" in the parlance of its British manufacturer, Freeplay Energy, features a light-emitting-diode, rather than a conventional bulb. The Xray comes in a moisture-resistant (but not waterproof) plastic case, in blue or see-through clear plastic-our choice. The wind-up system can be cranked in either direction, and an LED indicator shines when you're at the optimal winding speed. A 3D-second charge pro­ vides 20 minutes of light on normal-intensity setting. The flashlight ineludes an internal battery that, when fully charged with the included power adapter, pro vides 20 hours of light at the normal setting and 3 hours and 20 minutes at the bright setting. There's also the cheaper Sherpa Xray, but it's much less capable and costs a a measly five bucks less. Our advice: Go with the big guy. $34.95, www.freeplayenergy.com