Best Brokers With Lowest Options Fees, Cheapest Options Trading Commissions


Cheapest options trading commissions. Lowest options trading fees. 2017 best options brokers & platforms. Low cost option trading.



Low Cost Options
Broker
Options Trading
Commissions

Interactive Brokers rating

Interactive Brokers
$0.70 per contract if Premium => $0.10 + exchange fees
$0.50 per contract if $0.05 =< Premium < USD 0.10 + exchange fees
$0.25 per contract if Premium < $0.05 + exchange fees
Interactive Brokers

Interactive Brokers is one of the cheapest brokerage firms to trade options. Based on their pricing, trading 5 contracts costs anywhere between $1.25 and $3.50 depending on premium plus exchange fees. This low pricing is a huge advantage for those clients who don’t want their profits eaten up by commissions.

Another huge plus of Interactive Brokers is that they have the lowest published margin rates we’ve seen: 2.66% for debit balance of $0 - $25,000; 2.41% for debit balance of $25,001 - $300,000. That’s between 4 and 6 points below most other brokers and this low rate allows you to use leverage to amplify returns more successfully.

The word of caution: Interactive Brokers has a $10 monthly minimum commission requirement to avoid the $10 monthly inactivity fee and $10 monthly market data fee. This means that clients who trade only infrequently might pay up to $240 per year in fees (or $360 if their account holds less than $2,000)! Minimum to open most accounts is steep $10,000. Also, margin calls at this brokerage are merciless. A good amount of customers are getting wiped out.

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Interactive Brokers Website


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Low Cost Options
Broker
Options Trading
Commissions

Tradestation rating

TradeStation
$5 + $0.50 per contract
$4 + $0.30 per contract for IRA
TradeStation Brokerage

TradeStation's direct-access platform is one of the best we've seen! It offers all the bells and whistles users expect from the professional trading software. Customers have an ability to trade equities, futures, options, and forex from one place. Firm's technical analysis and back-testing platform has been recognized as the most popular among traders for many years. The order entry and execution part of the software makes TradeStation a superior product. All the tools are fully customizable. TradeStation is one of the very few online brokers offering automated trading.

Perhaps the most interesting aspect of TradeStation is the TradeStation Simulator, which allows members to test their trading plans and ideas in real-life simulated scenario without actually risking anything. Users can create different custom trading strategies and do back testing to improve those strategies before trading. They can follow multiple market trends and plan strategies accordingly. All of this is possible through a comprehensive database, consisting of historical market data and analysis that the platform offers.

In the Barron's magazine broker survey TradeStation got the highest rating in both Best for Frequent Traders and Best for International Traders categories. It also got very high rating in Best for Options Traders category.

If you have never heard about the company, there is nothing to worry: it is the U.S. subsidiary of one of the largest online financial services providers in Japan - Monex Group, Inc. More about the company in this Wikipedia article. Both TradeStation and Interactive Brokers are members of FINRA and SIPC.

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TradeStation Promotion Offer

Get $5 per trade stock and ETF commissions. $4 per trade for IRAs.


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How to Trade Options Before Earnings or News Release


Like a sexy gal that can cook or an inside source at the racetrack, an actionable option strategy prior to an earnings release is something that traders know must be out there, yet it remains elusive. Most investors looking to capitalize on an earnings beat or miss simply buy calls or puts. Some of the more sophisticated speculators even get long both a call and a put (straddle/strangle), thinking that if the stock moves enough one way or the other, they'll come out at least a little bit ahead.


Limited Risk – High Reward


The allure of only being long calls and/or puts is that a trader knows their maximum risk as soon as they enter the order. If a call on Apple costs $100, then $100 is the most you can lose, plus you have the chance to "rake it in" if Apple moves significantly before the option expires.

Therein lies the trouble with most long-side option strategies prior to earnings announcements...since no one knows what the earnings report will hold, or how the underlying stock will react; the demand for options goes up markedly before the announcement. Both speculators and shareholders looking to insure against volatility are clamoring for options which dramatically increases the premiums, making puts and calls overpriced.


Being the Bookie


Everyone knows that taking bets is more profitable long-term than making bets. Especially if the wager has very favorable odds for the house. This is exactly what overpriced options are for the seller – a game that stacks the deck against the buyer. In general, immediately after earnings are released, the demand for - as well as the volatility premium built into - calls and puts, evaporates. Even those that theoretically have both upside and downside covered find it difficult to profit once that "premium of the unknown" is gone from their asset.

So the obvious solution would appear to be: become a seller of options. If only it were that easy! Unless you have the bottomless pockets of a Goldman Sachs, the unlimited risk part of being a naked option seller will be too much for you and your broker's heart to take.


Credit Spreads


In order to take advantage of the inflated premiums in the option market prior to an earnings announcement, yet mitigate the risk of selling uncovered (naked) puts/calls, the go to strategies are "bull put credit" and "bear call credit" spreads.

Rather than getting bogged down in the stock XYZ trading at $50 - type explanation, I'll leave it to a google search for those wanting the nuts and bolts of how to construct the option spreads mentioned above. The focus here is how to maximize the profit from these spreads and that is accomplished in the unwinding.


Unwound


Once the earnings report comes out and the market is digesting and reacting to the numbers, option prices revert to a more realistic reflection of future prospects. This allows the options trader to unwind his pre-earnings position and cash in on the uncertainty that was prevelant prior to the announcement. Does it work every time? No. Does it provide enough profit to get an address on easy street if it's all a trader does? No. But it works often enough and provides a boost to the bottom line to make it a worthwhile play to investigate further.


Updated on 6/23/2017.






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