tastyworks (The Lowest Cost Options Brokerage)
Options Cost: $1.00 per contract to open, $10 maximum, $0 to close
Minimum to open an account: $0
tastyworks does not charge anything to open, close, or maintain an account. Equity option contracts are $1.00 each, with a $10 maximum per leg. On the closing side, the commission is a very nice $0.00. Exchange, clearing, and regulatory fees are the burden of the customer. The clearing fee is 10¢ per contract per side.
Futures options are also available. These cost $2.50 per contract on the buy side and nothing on the sell side. Once again, fees are passed on; and this time the clearing fee is 30¢.
Besides equity and futures options, tastyworks also offers index options. The commission is the same as equity options, although index options have different exchange fees. These vary from 18¢ to 65¢ per contract. Also, there’s no $10 cap per leg.
tastyworks’ desktop program is a good place to get started trading options. In the left-hand column, there is a watchlist. In fact, there are multiple pre-stalled lists. One of them is ‘high options volume.’ Selecting this during our research gave us a long list of stocks and ETFs with exactly what the title indicates. Some of the stocks included Tesla, which just launched its Cybertruck; and Schwab, which just announced its acquisition of TD Ameritrade.
In the middle of the screen is a workboard that can be used to analyze a stock, fund, futures contract, or potential option trade. Clicking on a security in the watchlist automatically populates this space plus the row above it. The top row provides important trade data, such as ask and bid prices and the account’s option buying power.
The workboard offers two basic formats: curve and table. The latter provides traditional option chains with strike price in the middle. We found it very easy to click on bid and ask numbers to create buy and sell orders for specific contracts. It’s also possible to select a pre-installed strategy in the top menu. Just click on the blue down arrow to choose from among icon condors, jade lizards, and a few other strategies.
The second format choice is curve. This system presents a potential trade in graphical format. For example, there’s a bell curve that shows price movement potential based on implied volatility. It’s also easy to drag a put or call left or right to change its strike price in this format. The strike price in the order ticket will automatically change, a convenient feature.
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Webull (The Lowest Cost Options Brokerage)
Option commissions: $0 base, $0 per contract, $0 exercises and assignments
Minimum to open an account: $0 for a cash account; $2,000 for margin account
In 2020, Webull has been named by TopRatedFirms.com "The Lowest Priced Broker for Options Traders".
The firm charges nothing for options contracts, assignments, exercises, and tickets. With Webull, you
are really trading options for free.
Webull offers a customizable trading platform which is constantly updated with new features.
The first level of options trading at Webull is long puts and long calls. Selling cash-secured puts
and covered calls is available at the second level, although a margin account is required.
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What Option Traders Should Look For in the Top Options Brokers
Buying and selling option contracts requires specific trading tools, which may not be available at all brokers. Traders who are interested in options would also benefit from educational resources, such as videos and webinars. These types of services for derivative investors can vary widely from one brokerage house to another. The following categories are particularly important for option traders.
Customer Service for Option Investors
Not all brokers provide the same level of customer support. Because option trading is a very esoteric financial strategy, having a brokerage firm that offers customer service specifically for derivative traders can be a big help.
Most brokers don’t have representatives who specialize in option trading. Ally Invest, for example, does not offer option
specialists over the phone. Other brokers do provide access to agents who specialize in derivative trading. Interactive Brokers, for
instance, has a stock and option trading desk, although its number isn’t toll-free.
Derivative traders may also need customer service available over the phone and via on-line chat. While all brokers have customer service over the phone,
not all of them offer an on-line chat feature. Vanguard, for example, does not; although E*Trade does.
Option Pricing
If you’re going to trade options, obviously the commission schedule for derivatives will be an
important factor to consider. Like the other topics in this article, there is wide variation from
broker to broker on option commission schedules. Some firms are on the low end of the pricing
schedule, charging $0 for contracts and base charge. This is Webull’s and Firstrade's schedule.
Other firms, like Vanguard, are on the opposite end, charging as much as $1 per contract.
Many brokers also charge for option exercises and assignments. WellsTrade clients, for example, must
pay $25 plus the broker’s regular equity commission, which is either $2.95 or $5.95. Schwab, on the
other hand, charges just its regular stock commission, which is $0. Because wide variation exists in
the industry on this issue, be sure to learn your broker’s pricing for assignments and exercises.
Option Research & Education
Having adequate learning materials is of paramount importance to trade any security, and derivatives
are no exception. Some brokers have a large amount of educational and research materials for option
contracts, while other firms have nothing. Sofi Invest, for example, does not even offer trading
in options, so naturally the broker has no resources for option traders.
Fidelity has an extensive educational section on its website, and there are plenty of materials for option traders. The broker hosts articles, videos, and webinars that cover many derivative trading strategies. One article discusses seven common mistakes that option traders commonly make. A video demonstrates how to place a bull call spread, while a webinar covers income strategies with options. The broker has nearly 100 option materials. Beginning option traders would obviously be much better off at a broker like Fidelity rather than WellsTrade.
Option Trading Technology
Once you’re ready to start placing option trades, you’ll need a broker that has sufficient trading tools. Some brokers offer just a website with a simple order form that is produced after clicking on a price within an option chain. Vanguard is one example. Other brokerage firms will offer much more sophisticated trading tools.
TradeStation client, for example, have access to OptionStation Pro. This is a desktop platform designed to trade derivative contracts. It has advanced option analysis with 2-D and 3-D graphs. Option searches can be performed with results that are ranked by various characteristics, such as expiration date and strike price. A unique feature is SpreadMaster, which can open and manage multiple spreads simultaneously.
Some brokers will also provide a paper trading platform where you can practice buying and selling options before committing real
money. TD Ameritrade, for example, offers both a desktop and a mobile platform where option contracts can be traded with a virtual
currency. Called thinkorswim, the software is very sophisticated, so learning to trade any product first is a good idea before
placing real trades.
Best Options Brokers Summary
Having the right tools is an essential part of any investment strategy, and perhaps even more so with options. Make sure to do thorough research on any potential broker to determine if it has everything you need to be a successful trader.
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