Wednesday, May 30, 2007

Discount Online Option Stock Brokers

As a follow up to my review of online discount stock brokers I thought I would take a look at option stock brokers and what they charge. I went around the various sites and priced option trades for contracts in various sizes (1 contract, 10 contracts, 50 contracts).

I limited my search to the cost of option trading. While important, cost is but one factor. Other factors that may influence the selection include option research tools, execution, and trading interface. I also ignored any discounts applicable to active traders and used the regular price listed. Here is what I found.


OptionsXpress (OXPS)

First up is OptionsXpress. I thought they might be the least expensive, but I was wrong. A single option contract is $14.95, ten contracts are $15.00 and 50 are a whopping $75.00. Perhaps the features of the website make up for the trade cost.


E*Trade (EFTC)

At E*Trade an option trade will set you back a trade fee of $12.99 plus .75 cents per contract. Therefore, a single option contract is $13.74, ten contracts are $20.49, and fifty are $50.49.


Scottrade

Scottrade charges a flat trade fee of $7.00 plus $1.25 per option contract. Consequently, a single option contract is $8.25, ten contracts are $19.50 and fifty contracts are $69.50.


TD Ameritrade (AMTD)

TD Ameritrade also charges a flat fee per option trade. That fee is $9.99 per option trade plus .75 cents per option contract. One option contract sets you back $10.74, ten option contracts go for $17.49, and fifty are $47.49.


Interactive Brokers (IBKR)

One of the least expensive option brokers is Interactive Brokers. There is no trade fee with each contract costing .75 with a $1.00 minimum. Under this fee structure one contract is $1.00, ten contracts are $7.50 and fifty contracts are $37.50.

Interactive Brokers also has a separate breakdown by option price. If your option is price at .10 cents or greater, the above rates apply. If it is priced between .05 and .10 cents the per contract price drops to .50 cents and anything less than .05 cents goes for .25 cents a share.

It would appear that Interactive Brokers is the cheapest but there is one thing to keep in mind. Interactive Brokers caters to the active trader. Therefore there is a certain minimum needed to avoid an automatic charge. One must execute $10 worth of traders per month or be assessed a $10 per month charge. Also one must also trade a total of $30 to avoid the data feed charge of $10 per month. Therefore at a minimum one will be charged either $20 per month ($240 annual) or trad enough to satisfy the $30 ($360 per year) minimum activity.


MB Trading

Much like Interactive Brokers MB Trading charges no trade fee and a low per contract fee. A single option contract cost $1.00, ten option contracts $10.00, and fifty contracts $50.00. One must trade a minimum of 10 contracts per month or a $10 ($120) per month fee will be assessed.


Trade King

A low cost surprise is Trade King which charges an option trade fee of $4.95 plus .65 cents per option contract. A single contract goes for $5.60, ten contracts for $11.45, and fifty for $36.45.


Zecco

Zecco is relatively new and offers low cost option trades. A flat fee of $3.50 is followed by a .60 cent per option contract charge. A single trade goes for $4.10, ten contracts for $9.50, and fifty for $33.50.


Think or Swim (SWIM)

Think or Swim is the final broker I researched. It offers the most flexibility on option trade pricing. The standard option trade rate is the lessor of $2.95 per contract or $1.50 per contract plus a flat fee of $9.95. Under this pricing scheme a single contract is $2.95, ten contracts is $24.95, and fifty is $84.95.

What is unique about Think or Swim is that they allow you to choose form several different pricing plans and will even allow you to keep the pricing plan you used at another broker.The first standard alternative rate is $1.25 per contract with a $12.95 minimum. Under this plan a single option contract is $12.95, ten contracts are $12.95, and fifty contracts are $62.50.

The second alternative pricing structure is .95 cents per contract with a $19.95 minimum. Both a single and ten contract option trade are done at the minimum under this plan and a fifty contract trade goes off at $47.50.As mentioned you can also choose to use any other brokers pricing scheme as detailed on Think or Swim's Rate Sheet.


OptionsHouse

OptionsHouse is a new broker (January 07) that offers aggressive pricing for option traders. The cost for options trades are a flat $9.95. So for one contract you pay $9.95, 10 contracts $9.95, and fifty option contracts $9.95.

While OptionsHouse is a new brokerage it was given four stars by Barron's in the March 2007 stock broker review and rated as one of the best brokers for options traders.


Overall

It usually does not make sense to trade one option contract. But if you must then Think or Swim at $2.95 is the lowest cost. At the other end, most will not trade fifty or more contracts, but if you do it will be hard to beat OptionsHouse at $9.95, which is over twenty dollars cheaper than either Zecco and the highly regarded Interactive Brokers.

For the majority of traders who trade in the ten option contract range the brokers ranked in order from most to least option trade price for ten option contracts are:

E*Trade $20.49

Scottrade $19.50

TD Ameritrade $17.49

OptionsXpress $15.00

Think or Swim $12.95

Trade King $11.45

MB Trading $10.00

OptionsHouse $9.95

Zecco $9.50

Interactive Brokers $7.50

While Interactive Brokers does come out the least expensive it must be remembered that one will spend a minimum of $240 per year either in trades or fees. Excluding Interactive Brokers would leave Zecco as the lowest priced broker. Of course the relative newness of Zecco may put some off. Of the brokers which cater exclusively to option traders OptionsHouse and Think or Swim appears to be the best price with no minimum trade fees.

78 comments:

Deborah said...

Good info. Your posts are always informative.

OPTIONS TRADING BEGINNER said...

Hi Steven,

Great job! Very helpful & informative.
Coincidentally, I also wrote about discount online stock option brokers recently. So, I updated my post "List of Some Online Stock Option Brokers" to link to this post. Thanks for the excellent info!

Btw, congrats for being a new parents. Hope the baby brings more joy to your family. Enjoy! :)

Anonymous said...

Please take a look at OptionsHouse and add them to your list for readers... I have been using them a couple of months.

They charge 9.95/leg of a trade, with no per contract fees. I will trade 100 contracts on each side of a spread, which costs 19.90 at OptionsHouse, and between $100-200 at any other borker. I don't have any complaints - it is great for option traders that trade alot of spreads.

Happily Hedged said...

Also please add PTI ProDirect to your list of great online brokers. They are new and are certainly worthy of review. Their site is www.PTIProDirect.com. They offer online stock & option commissions LOWER than OptionsXpress, Schwab, Fidelity, E*Trade and Trade King. Their experienced brokers are available by phone and they offer extensive education resources, trading demo, etc. A one-stop-shop!

Anonymous said...

I just looked PTI ProDirect and am going to open a Corporate Account. Their prices are good and I called and talked to a broker there who was most knowledgeable and helpful. Thanks

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did you check the info regarding online stock brokers at:
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Anonymous said...

Great site with some helpful reviews. Another helpful site I found with informed and succinct reviews is Online-Broker-Review.com.

Anonymous said...

Good info. Just one note: wouldn't IB be cheaper than ToS if you trade only 1 contract? You said ToS is cheapest at $2.95, but IB only charges $1.

Patton said...

It's a nice review...... too have make investments through Zecco & got handsome returns.

Anonymous said...

DO NOT USE OPTIONSHOUSE. IT'S 4/17/08 AND IN THE LAST 4 WEEKS THERE WEBSITE WAS DOWN 3 TIMES. CALL TIMES TO GET THROUGH TO A BROKER DURING THEIR WEBSITE PROBLEMS WERE MORE THAN 20 MINUTES. I AM SWITCHING EVERYING OVER TO TRADESTATION.

Anonymous said...

You should update Zecco. They have changed their rates to $4.50 per trade.

Anonymous said...

Trading with TOS is an amazing experience, but transferring your money out of TOS is a nightmare to behold. It has taken over a week to transfer just a small sum from my TOS account, where it has been done the same day with my OptionsXpress account. Don't use it for an account where you might want the money quickly. Oh and their chat help was not helpful it took over half an hour for simple questions regarding the transfer.

Anonymous said...

IB charges cancellation fee for 0.25/contract. The spread on options are big, if you let your options fill at market you will pay >20% more you should pay. If you put between the bid and ask, sometimes you will not be filled. Then you will be charged by IB for cancellation. Sometimes I pay $100/day for cancellation fees at IB. IB is BS!

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