Online Options Trading

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Online options trading is one of the most lucrative and one of the most risky forms of investing. Because options contracts provide large amounts of leverage, with relatively small amounts of money, investors can create massive investments with a fraction of the normally required capital. Show summary

Online Options Trading Brokers

Broker

Options Contract Fee

Options Base Fee

Ally Invest

$0.50

$3.95

E*Trade

$0.75

$6.95

Interactive Brokers

$1.00

$0.00

tastyworks

$1.00

$0.00

TD Ameritrade

$0.75

$6.95

TradeStation

$1.00

$0.00

Options trading is a double edged sword, however, because it’s possible to make highly outsized returns, like 1,000% + in a matter of days.

Best Brokers to Start Online Options Trading

To buy or sell put or call options online, you’ll need a broker. This is a list of the best broker for options trading in 2018.

Tips on Picking the Best Options Broker

A lot of options brokers are strikingly similar. Pretty much all brokerages offer a user-interface (trading platform) to execute options trades.

This is why it’s paramount to keep your trading fees as low as possible, because, truth be told, if you’re using TD Ameritrade to trade options, you could get almost the same client experience at a brokerage like tastyworks or Ally Invest for a fraction of the price.

Quick Tips

  • Stay Cheap & don’t overpay for options trades. At the end of the day, your broker doesn’t determine the probability of your position, other than charging you a fee to trade.
  • Don’t skimp on customer service – When you need assistance with an options trade gone awry, it’s infuriating to wait on hold or wait until the following morning to speak with a licensed broker.
  • Remember exercise and assingment fees – When an option expires in the money, you’ll have to pay an assingment or exercise fee & these fees can add up for lots of options positions.

Important Info about Online Options Trading

If you’re looking to start online options trading, the first thing to know is that options trading isn’t for everyone.

With options trading, you could theoretically lose more than your initial investment, or 100% of your initial investment.

It behooves options traders to familarize themselves with the Characteristics and Risks of Standardized Options.

This high-level document explains why options are deemed risky, and what options traders need to know about personal risk tolerance before they begin trading. FINRA, the Financial Industry Regulating Authority, also has very useful information about options trading.

Best Choice

It’s hard to go wrong with any of the options brokers on this list, but if we had to pick one broker in particular, we’d pick Ally Invest.

With Ally, trades are super cheap, customer service runs around the clock, options trading platforms are on point, and it’s super easy to connect our trading account to our checking and savings accounts at Ally Bank.

To help new and veteran options traders alike, we compiled a list of the 12 most common and useful options trading strategies. View the strategy overview page here (click on a specific graph to learn everything about that strategy).

Some of the most common options trading strategies are short calls and long calls.

Check out Some Recent Options Trading Articles

How to trade stock options

Turning $9,333.62 into $24,558.62 Trading ES Options

3 Best Options Trades in History

Why buying options can be costly

Who Trades Options?

A lot of sophisticated, high net-worth traders (especially hedge funds) don’t see the need to speculate with options. This is primarily because options provide additional leverage, and hedge funds or high net-worth individuals typically don’t need the extra leverage that options provide, because they have a lot of capital to use instead.

Ad such, lots of investors opt to stick with buying stocks as opposed to buying call options on a specific stock. However, this is not always the case.

Hedge funds use options to hedge their existing positions all the time. They may refrain from speculating with short puts or short straddles, but they often use long puts to hedge long stock positions.

When you buy a put on a stock, if the stock goes down, the put goes up in value. Although there are other factors that determine the price of options, the price of the underlying stock is the biggest factor. Read more about option pricing here.

Options vs Stocks

Online options trading is not that dissimilar from online stock trading. In fact, the two forms of trading are basically the same thing, except options involve more risk.

Options allow traders to:
1. Speculate via inherent leverage
2. Hedge (protect against stock market losses)

Stocks, on the other hand, don’t offer the same form of hedging.

This is one of the main reasons why options are often referred to as “insurance.” To buy an option, you have to spend money “premium” and the goal is to have an event occur, like a stock market sell-off, which would cause the option to increase in value beyond the original premium.

Common Mistakes

We have been trading options for several years, and every time we think we’ve seen it all or learned a lesson the hard way, we’re proven wrong.

Making consistent money via options trading is NOT easy. If it were easy, everyone would quit their jobs and solely trade options. This doesn’t mean it’s impossible, but it means you need to do everything in your power to increase your odds of success.

This means you need to pick a low cost broker, know all of the basic options trading strategies, and know how to control your the overall risk of your entire portfolio. Lot’s of new options traders fall into the trap of “I’m going to start options trading with $2,000. My first trade is to buy $2,000 worth of call options on Snap, Inc stock.”

Never do anything like this! You should never use all of your account on one options trade, especially because options have the probability of expiring worthless.

Final Thoughts

If you do it right, options can compliment just about any investment portfolio. Always remember to keep your risk under control, never max-out your account with long options positions, choose an options-friendly broker, and always be willing to learn new options trading strategies and ideas.

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