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Best Options Broker Review
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These brokers are excellent for stock equity trades as well!
As you may have read in my review of The Options Playbook, I’ve started to get interested in trading stock options. As has been the case with everything I try, I do a lot of research first and then I dive right in. As my dad always said, you learn in the classroom or you learn on the street. Learning on the street is always more expensive. I prefer the classroom. 
In my limited knowledge of options, it appears that there are two main discriminators: price and tools. For price, it’s a matter of comparing the cost per trade and per contract. For tools, it’s having the ability to quickly make complicated trades without having to jump through too many hoops. In my review of the Options Playbook, I talk about two types of “plays.” The more complicated plays involve several “legs,” or options trades, that hedge each other and the better options brokers let you setup those plays with one screen. In fact, most brokers make that transaction easy because it results in more trades, which means more profit, so it’s almost not even worth comparing brokers based on that (remember, I’m a total novice in this so I may be wrong).
So, it may just come down to price.
How Options Commissions Work
With stocks, you generally pay a set commission per trade, regardless of the number of shares purchased or sold. Per share commissions on stock trades only come into play when you transact penny stocks (stock price under $1) and they usually add a per share surcharge for those.
With options, it’s slightly different, there is usually a “per trade” commission plus a “per contract” commission. With options, you are buying and selling contracts, rather than the underlying shares. The contract usually exerts control over a block of 100 shares, either to sell or buy, and you can buy multiple contracts with one trade. So if you’re buying 2 contracts, you will pay one “per trade” commission and then 2 times the “per contract” commission.
Best Options Broker
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TradeMONSTERTradeMONSTER is a relatively new broker that has earned several quick awards in the short time they’ve been in business (Barron’s awarded them four stars in November 2008). On TradeMONSTER you can trade stocks, options, ETFs, mutual funds, and bonds – just like any other broker but they offer very competitive pricing if you’re an options trader who doesn’t do a whole lot of options trading. On a single leg options trade of 10 or 20 contracts, you’ll pay a mere $12.50. At 50 contracts, you double the price to $25, a third of what you’d pay at optionsXpress. For stocks, it’s a flat $7.50 a trade up to 5,000 shares, then it’s a penny a share. As for tools, they have as competitive a suite of tools as nearly any other broker. |
TradeKingTradeKing, one of my favorite brokers for stock trades, charges $4.95 per trade and then $0.65 per contract, which puts it as one of the cheapest commission rates of any broker. When you combine this commission schedule with their $4.95 per stock trade and the slew of awards they’ve won, TradeKing takes the lead for the best options brokers of the bunch. In terms of tools, Barron’s 2009 Online Broker Survey gave them high marks for their options trading tools and an overall score of four stars for the third straight year. Finally, they have no minimum account balance and no maintenance/account fees. |
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OptionsHouseOptionsHouse is one of the few brokers that charges a flat-rate of $9.95, regardless of the number of contracts traded. While relatively new to me, OPtionsHouse is backed by market maker PEAK6 and was rated #1 in trade experience in Barron’s 2009 Online Broker Survey, beating out OptionsXpress and E*Trade, also on this list. Also, they have no minimum account balance and no maintenance/account fees. |
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OptionsXpressOptionsXpress charges a fairly average $9.95 per trade, $0.75 per contract commission on par with many other options brokers. In terms of awards, their trophy case’s most recent addition was in 2005 when they were rated the Best Online Broker for the third straight year by Barron’s, an accolade they must have lost to newcomers like TradeKing and OptionsHouse. The one very appealing feature OptionsXpress offers is a virtual trading account, which gives you $5,000 in virtual cash that you can invest in stocks and options. If you’re new to either, taking advantage of this absolutely free feature is a great way to dip your toe in the water without actually putting that toe at risk. |
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E*TradeE*Trade is the priciest of the bunch charging $12.99 per trade and then $0.75 per contract, but again no account minimums of maintenance fees. I normally wouldn’t have included them on the list, with the price that much higher, but they do have one benefit none of the three others offers – an online savings account at an FDIC insured bank. Through E*Trade Bank, which you can link electronically, you can earn a higher than market average (which isn’t that high at the moment) return on your funds not actually in the market. It’s a small benefit but one worth mentioning. Like the others on this list, there is no minimum account balance and no maintenance fees. |
Is there a good broker that I missed and should be included in this survey?
{ 6 comments, please add your thoughts now! }
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THINKORSWIM!!! There is simply nothing better than TOS. They have the best options platform; it is simply unmatched in the industry and they are always striving to improve it with new software releases every month. You can sign up for a paper trading account with no obligation and download their desktop platform. They also have web-based and a nice iphone app. There customer service is handsdown the best. I’ve used a lot of brokers but cannot rave enough about TOS.
All the brokers you listed are complete ripoffs. I’m not sure how any research would not have led you to TOS. Commissions are lower than advertised if you ask for a match. I trade options $1.25 per leg, no minimum, $1 minimum on stocks, and $2.5 per leg on futures. If you’d like a referral to get discounted commissions, I’d be more than happy.
Depending on your volume of trades, you should also look into trademonster, they have a great web-based platform with extremely reasonable commissions if you trade in size.
I second Thinkorswim. It is not so much about price, but the tools available. TOS is the best.
I third Thinkorswim. I’m a total novice and find options trading for call options pretty easy once you get used to the fundamentals of the charts they provide. I’m also reading the options playbook that was recommended on tradeking. TOS is really good.
Jim, since you are a beginning options trader I suggest you simply buy a small number of calls or puts depending on what you think the underlying ETF or stock direction will be. The tools are helpful for complicated trades but the costs are very high for multi-leg trades. Mostly left for the professionals. I would suggest that you buy options in the most liquid ETFs, namely QQQQ and SPY. The difference between bid and ask is very small so you have an actual chance of getting a good price. Also, they are offered at strike prices that differ by one dollar rather than five dollars.
Jim – love your site.
Don’t overthink this: ThinkOrSwim is the best for options trading. I’ve been a customer for 2 years. Their software is the poster-child for Java apps. There is no equal, unless you’re more interested in FOREX (MetaTrader). OptionVue is excellent too, but the costs involved add up. Also, E-Signal is amazing for charting, but their monthly fees will murder you.
I can’t recommend TOS enough: just negotiate decent commissions ($1.50/contract) and you’ll be set…
does TOS accepts international client’s?