Penny Pilot Program

What Is the Penny Pilot Program?

The Penny Pilot Program is an SEC-approved initiative that allows designated high-volume options to be quoted in one-cent increments. Before the program, most options traded in minimum increments of five cents (for options priced below three dollars) or ten cents (for options priced above three dollars). On active names with wide natural bid-ask spreads, this coarser increment added unnecessary cost and friction for traders.

Launched in 2007 and expanded several times, the program targets securities that meet volume and open interest thresholds. Not every optionable stock or ETF is included — only the most actively traded names where tighter pricing has meaningful benefit.

SPY, QQQ, AAPL, TSLA, SPX, and most high-volume equity and ETF options are Penny Pilot participants. Less actively traded names typically still trade in nickel or dime increments.

Why It Matters for Options Traders

Bid-ask spread is a real cost. Every round trip — buying at the ask and selling at the bid — costs the spread. In non-Penny Pilot options with ten-cent minimum increments, this round-trip cost can be a meaningful percentage of small premiums. Penny increments reduce this friction significantly.

Penny Pilot participation changes competitive dynamics. With tighter minimum increments, market makers must compete more aggressively on price rather than relying on wide increments to maintain edge. The result is tighter natural spreads benefiting all participants.

The practical impact for retail options traders is most visible in at-the-money options on liquid underlyings. A front-month SPY call or put at-the-money might have a bid-ask spread of one to two cents in active trading — effectively negligible relative to the premium. The same contract on a non-Penny Pilot name might trade with a spread of fifteen to twenty cents, which adds up quickly if you are adjusting or closing positions frequently.

Slippage from wide spreads is a silent performance drag. Traders who work primarily in liquid, Penny Pilot names benefit from this structural advantage without necessarily naming it. Traders who venture into lower-volume names with non-Penny Pilot quoting should build wider spread costs into their expected transaction costs.

Key Characteristics

• One-cent minimum quotes: Penny Pilot options trade in one-cent increments rather than the standard five-cent or ten-cent minimums.
• High-volume eligibility: Only the most actively traded equity and ETF options qualify — the program targets names with sufficient liquidity to support tight pricing.
• Spread compression: Penny increments directly reduce bid-ask spreads, lowering the implicit transaction cost for all market participants.
• Market maker competition: Tighter minimum increments force more competitive quoting, which benefits buyers and sellers alike.
• Not universal: Many lower-volume names still trade in nickel or dime increments. Execution cost analysis should account for which regime an underlying falls under.
• SPY, QQQ, SPX included: The most commonly traded options products are Penny Pilot participants, so most active retail trading occurs within the penny regime.
• SEC-approved and expanded: The program was first approved in 2007 and has been extended and expanded multiple times as the SEC gathered data on its market quality effects.