Penny Pilot
The program that allows popular options to trade in one-cent increments.
The Penny Pilot Program is an initiative that allows select, highly liquid options classes to be quoted in one-cent ($0.01) increments instead of the traditional five-cent ($0.05) or ten-cent ($0.10) increments. Launched in 2007 as a pilot, it has been repeatedly extended and now covers most actively traded options. The program significantly reduced bid-ask spreads on included options, lowering trading costs for all participants.
Why It Matters
The minimum tick size directly affects your trading costs. Before the Penny Pilot, an option might have a bid of $3.00 and an ask of $3.10 — the minimum $0.10 spread meant you paid at least $0.05 per share to trade (half the spread). With penny increments, the same option might quote $3.03 bid / $3.06 ask — cutting your implicit trading cost by more than half.
For active traders who enter and exit many positions, the Penny Pilot saves significant money over time. For spread traders who leg in and out of positions, tighter tick sizes mean more precise execution. The program has been one of the most impactful structural improvements for retail options traders.
How It Works
How it works:
- Options classes selected for the Penny Pilot are quoted in $0.01 increments for options priced below $3.00 and $0.05 increments for options priced at $3.00 or above
- Non-Penny Pilot options are quoted in $0.05 increments below $3.00 and $0.10 increments at or above $3.00
- The CBOE and other exchanges periodically review which classes qualify based on volume and open interest
Which options are in the Penny Pilot: Most actively traded names including SPY, QQQ, AAPL, TSLA, AMZN, META, NVDA, and hundreds of other liquid stocks and ETFs. The list is reviewed and updated regularly. Nearly all options that a typical retail trader would trade are included.
Impact on spreads:
| Metric | Pre-Penny Pilot | Post-Penny Pilot |
|---|---|---|
| Minimum spread | $0.05 or $0.10 | $0.01 |
| Typical ATM spread | $0.10 - $0.20 | $0.01 - $0.05 |
| Implied cost per trade | $5 - $10/contract | $1 - $3/contract |
Impact on market makers: Tighter spreads mean less profit per trade for market makers. This led to consolidation in the market-making industry — smaller firms could no longer compete, and a few large, technologically sophisticated firms (Citadel Securities, Susquehanna, Wolverine) came to dominate. Market makers compensated by increasing volume and improving speed.
Impact on order book depth: One trade-off of penny pricing is reduced depth at each price level. When quotes can only be at $0.05 increments, all resting orders at that price aggregate into more depth. With penny increments, liquidity is spread across more price levels, each with less size. This can make large orders harder to fill at a single price.
Quick Example
You want to trade the SPY $450 call (in the Penny Pilot). The quote is: $5.02 bid / $5.04 ask. The $0.02 spread means you can buy at $5.04 or sell at $5.02, with a round-trip cost of $0.02 per share ($2 per contract).
Compare this to a non-Penny Pilot stock with a similar priced option: the quote might be $5.00 bid / $5.10 ask. The $0.10 spread means a round-trip cost of $10 per contract — five times more expensive.
If you trade 50 SPY contracts per month, penny pricing saves you roughly $200 per month in spread costs compared to nickel pricing. Over a year, that is $2,400 — real money that goes straight to your bottom line.