If you’re wondering how to trade options for free, you’re in the right place. Although it’s not a well-known fact, a large part of the revenue that any given online broker generates actually comes from derivatives trading, namely options trading. This is important news for options traders, because active options trading is expensive for the client and profitable for the brokerage.
Having said that, for all traders, it is paramount to keep transaction costs as low as humanly possible. Every unnecessary dollar spent on commissions, that could have been reduced, is automatically a loss – think about that. In the business of trading, as well as business in general, you should always save every dollar that you can.
Here’s a quick guide on how you can trade options free of charge, at least partially, without sacrificing necessary trading technology or options trading strategy permissions.
Key Points:
- Tastyworks is an innovative online brokerage that doesn’t charge for closing options trades
- All closing options trades are FREE, and they only charge $1.00 per contract to initiate a trade
- Closing trades for stocks and options on futures are also free
- New for 2018, tastyworks is offering capped options commissions for spreads
How to Trade Options for Free
Essentially, if you want to trade options for free, you have to sacrifice something. There is simply no way around this. Online brokers wouldn’t stay in business if they didn’t charge clients to trade. The exception to this rule are anomaly brokerages like Robinhood than are not sustainable (they’re burning millions of dollars in VC money) and only offer long investing (more on this later).
Tastyworks is the first online brokerage, that we know of, to offer FREE closing trades for all options contracts. It only costs $1.00 per contract to initiate a trade, and it is entirely free to close out the position. Therefore, the effective commission for options it is $0.50 per option contract without a ticket charge. Although this isn’t free, it’s more or less as close as it gets to free for small lots of contracts.
To give some perspective, other online brokerages like TD Ameritrade charge a $6.95 ticket charge plus $0.75 per option contract. Tastyworks is changing the game with their options trading pricing. No software fees. No subscription fees. And free closing trades. Not bad.
To date, tastyworks is the best method of long-term “free” options trading that will work into perpetuity. Having said that, there is another way to trade options for free.
Alternative Way to Trade Options for Free
Another method of free options trading, known as brokerage churning, involves opening up accounts with multiple brokerages offering free trade promotions, often at the same time.
Although it is time consuming and will require you to divvy up your trading bankroll and deposit it at with different brokerages, this method works well… until you exhaust the promotions.
These are the top free trade promotions for options traders in 2018:
Up to $3,500 cash bonus + commission free trades for new accounts
Get 500 free trades and up to $300 cash with Firstrade
Join TD Ameritrade. Trade free for 60 days + Get up to $600
Brokerage churning is essentially the same thing as credit card churning, i.e. signing up for multiple credit cards at the same time to take advantage of the generous signup bonuses. It’s fun to do for a little while and will unquestionably save you money, but it is not a long-term solution to reducing options commissions. Tasyworks seems to be a decent long-term solution.
Full Tastyworks Review
Check out our full review of tastyworks and see screenshots of the web-based and mobile platforms. Although there are a few areas where tastyworks could improve, like making their web-based options chain easier to understand at first-glance, tastyworks is a very attractive choice for active options traders looking to reduce their fees.
Plus, we like companies that are innovative and willing to offer an alternative to the high-priced mega brokerage giants of the world.
The software offered by tastyworks, and the online financial content offered by their parent company tastytrade, is totally free with no strings attached and honestly might even be worth paying for, if it cost money.
Free Options Trading Alternatives
Although some other online brokerages offer “free” options trading, you really have to read the fine print.
Robinhood recently introduced their version of free options trading to clients, but they only permit long options positions. This is completely ridiculous, since selling options is one of the main reasons to trade options as opposed to stocks. This means all spreads, iron condors, short options, and anything else you can think of that’s not a long options position is not allowed – lame.
Like Robinhood, Jellifin is another brokerage that purports to offer free options trading, but they charge a monthly fee of $9 and only permit long options positions just like Robinhood. Jellifin is incredibly basic and not recommended for any serious options trader.
Final Thoughts
Reducing options, and all trading, commissions as much as possible is something we cannot stress enough. In the world of trading, only of the only certainties is paying fees. Exchange fees, brokerage fees, assignment fees… you name it, there’s a fee for it.
If you have the ability to reduce any one of these fees, it truly behooves you to do so. Tastyworks reduces these fees for their clients and we think that’s pretty awesome.
Plus, if you want to save even more on commissions, capitalizing on brokerage promotions is another proven method of trading options for free, for a short amount of time.
