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Key Takeaways
- Options trading entails the buy or sale of contracts, which grant the holder the right to trade stocks, commodities, and other assets at an agreed upon price before a predetermined time.
- Best options trading platforms provide an easy and reliable way to enter the market and start generating returns on your investments.
- Fees, user experience and range of markets available are key considerations for choosing an options trading broker.
- Webull, Tastyworks, E*Trade, Interactive Brokers, TD Ameritrade are some of the best options trading platforms that exist in the market.
- In order to successfully trade options, you’ll need a brokerage account, familiarize yourself with the basics of options pricing and strategies, and practice your trades through a paper-trading account.
Options trading is more alluring than ever in the current market climate. Stock prices now fall more often than they increase due to the tidal turning brought on by more restrictive monetary policies. Options brokers are in high demand at the moment, so now is a great time to start looking for one. Options allow buyers and sellers the right, but not the duty, to transact at a predetermined price and time frame.
So that investors may choose the best options trading platforms that best meets their requirements, we compared and assessed the top online brokers for trading options.
What is options trading?
Options trading is a form of investing that entails the buy or sale of contracts, which grant the holder the right to purchase or sell stocks, commodities, and other assets at an agreed upon price before a predetermined time.
When researching options brokers it’s important to consider:
- Fees – Make sure you know what commissions and fees are associated with your trades.
- User Experience – Find a platform that has a user-friendly design and offers comprehensive educational materials on how to get started in options trading.
- Range Of Markets Available – Look for platforms that offer access to multiple markets around the world so you can diversify your portfolio and take advantage of different opportunities.
Why trade options?
Options trading can be used to protect existing investments, as well as speculate on future gains. Options traders may benefit from certain tax advantages due to their structure and have the ability to buy or sell without having full ownership of an asset. Additionally, options allow investors to hedge against potential losses and create more diverse portfolios for increased returns.
Options trading can also be used to help generate income. By writing options contracts, traders can collect premiums that offer a steady stream of income while minimizing their risk.
How Options Trading Works
At its core, options trading is a way to speculate on the direction and volatility of an asset. In order to trade options, investors must first open an account with an online broker. They will then need to fund the account by making a deposit. After that, they can use their platform’s software to place orders for options contracts.
Options contracts have an expiration date and a strike price. The expiration date is the agreed upon time by which the contract must be fulfilled or it becomes worthless. The strike price is the predetermined price at which the options can be purchased or sold.
When placing an options trade, traders will need to decide whether they want to buy or sell, as well as the type of options they want to trade. There are two main types of options – calls and puts. A call is an option that gives the buyer the right to purchase an asset at a predetermined price before its expiration date. A put is an option that gives the holder the right to sell an asset at a predetermined price before its expiration date.
Best Options Trading Platforms
After carefully considering each of the top options trading platforms, we have compiled a list of our favorites. Each broker offers something unique to meet your needs and help you become a successful trader.
Webull
In 2017, Webull opened for business, and in 2018, its mobile brokerage platform was made available. The company’s mobile-first approach mirrors the demographics of its ideal customer: youthful, tech-savvy, always on the move, and engaged in active, self-directed trading. Options on the S&P 500 Index (SPX), the CBOE Volatility Index (VIX), and the Mini-S&P 500 Index are now available via the Webull platform. In 2021, Webull enabled trading of fractional shares, and by 2022, it eliminated commissions for trading OTC stock.
Webull provides a very specific service, providing access to just equities, ETFs, options, and cryptocurrency. Despite not charging commissions or fees on these assets, Webull nevertheless offers a number of useful services and tools, including as real-time quotes, news, and technical and fundamental analysis. Webull also releases market calendars and gives a breakdown of ratings from numerous analyst ratings with extremely clear and simple to comprehend visuals. Mutual fund and fixed-income trading are unavailable on the platform.
Both the desktop and mobile versions of Webull are intuitive. Webull’s stock screener allows users to apply several filters to their results, and they may then store their filtered results as a watchlist. Webull’s charting features have been improved recently, and the platform now includes tools for building the most typical one-, two-, and four-legged options strategies including vertical and calendar spreads, straddles/strangles, butterflies/condors, and more. The portal also provides the user with the ability to change the option strategy’s strike price and maturity, in addition to displaying a payment graph at maturity for the strategy.
Webull is honest in that they take money for order flow instead of charging commissions or fees to their clients. Since Webull does not pay interest on client accounts in the bank, this is another source of income for the company. Previously, Webull’s paper trading platform only allowed for the simulation of stock and ETF trades; however, the company has only just introduced the ability to trade options, although only with single-leg option strategies. As opposed to making a single order for a spread, as is possible on the main, non-paper trading platform, you would have to buy each leg of an options strategy as separate single leg options.
High-volume, active traders may notice the difference in cost the most given that many brokers still impose charges upon initiating and terminating options contracts. Therefore, this makes Webull a potentially advantageous online broker for high-volume traders.
Tastyworks
In 2017, tastytrade introduced Tastyworks, an app designed by the same team that created TD Ameritrade’s stellar thinkorswim® platform. Motivated by a desire to provide self-directed retail traders with access to markets and advanced research tools, the company’s founders set out to build such a platform. Only stocks, ETFs, options, and cryptocurrency trading are available on Tastyworks, making it geared primarily toward active investors and traders.
Tastyworks’ options trading costs are among the lowest in the industry. Options trade opening costs are $1 per contract, with a maximum of $10 per leg, irrespective of trade size. The clearing fee is $0.10 per contract. Compared to other brokers, tastyworks’ options trading fees are much lower since it does not charge a commission when a trade is closed.
With Tastyworks, you may open and close a 50-lot vertical call spread (two hundred contracts total) for only $40, thanks to the maximum $10 per leg for the two legs ($20) and the $0.10 clearing charge for 200 contracts ($20). A same deal executed at E*TRADE, which charges a $0.50 fee per contract for high-volume, high-frequency traders, would set the trader back $100. Costs for executing a similar 100-contract vertical spread deal at Tastyworks would be $60 ($20 for the two legs and $40 in clearing fees), whereas the same trade executed at E*TRADE would cost $200. With respect to pricing, Tastyworks is competitive across the board for options traders, especially for high-volume, high-frequency traders.
Tastyworks offers competitively cheap fees without sacrificing depth in options analytics, ease of use in the trading platform, or consideration for trade input. Options analytics are one of Tastyworks’ strong points, and the platform makes it simple to execute trades by automatically setting up the trade structure when particular options strategies, such a vertical spread or butterfly, are selected via an easy-to-use drop-down menu. Options strategies may then have their expiry dates and strike prices modified with ease. Probabilities of success for different options strategies are also provided by the platform.
The desktop and mobile versions of Tastyworks are intended to have a very similar appearance for the sake of cohesion, with a few minor adjustments made to accommodate the lower screen size of the mobile app. While Tastyworks does provide live streaming quotations, it does not offer any kind of in-depth analysis or live news coverage. There is a Follow Traders option on Tastyworks that lets you keep tabs on what the company’s A-listers are buying and selling. Tasyworks’ 4.4 excellent rating on Trustpilot comes from more than 100 reviewers, all of whom praised the company’s quick and knowledgeable customer care.
Our research revealed that Tastyworks had the most attractive combination of features, including low options trading costs, a wealth of advanced options trading tools, and first-rate options-specific educational materials, including both recorded lectures and live trading sessions.
E*Trade
Despite having higher costs than other online brokers in the options trading industry, we found that E*TRADE met the demands of both novice and seasoned investors and traders, making it our top pick for “Best Broker for Beginning Options Traders.” The online brokerage E*TRADE was founded in the 1980s and was acquired by Morgan Stanley in 2020.
New options traders may benefit greatly from E*TRADE’s extensive library of instructional resources, which includes not only in-depth guides to options trading but also guides to other areas of investment. E*TRADE’s paper trading feature is particularly useful for novice options traders since it allows them to experiment with different options strategies without risking any real money.
Since E*Exchange collects fees on both sides of the trade, with no maximum fee, there is a fee disparity that grows more pronounced as trading volumes rise. An active trader on E*TRADE would pay $20 for a 10-contract vertical spread, but on tastyworks, they would pay just $14. The disparities become more apparent at higher trading volumes; for example, the charge on a 100-contact spread deal at E*TRADE would be $200, but just $60 on tastyworks.
E*TRADE is competitive with many of the big full-service brokerages across a broader variety of asset classes and provides more than simply options trading. In addition to options trading, E*TRADE offers its users real-time access to stock quotations, news, fundamental research, and various screeners covering equities, exchange-traded funds (ETFs), mutual funds, and fixed income. Consequently, although E*TRADE may be at a financial disadvantage for high-volume, high-frequency options traders, it is a full solution for investors with a typical portfolio of stocks, funds, and bonds who are inquisitive about expanding into options trading.
Interactive Brokers
The Best Broker for Advanced Options Traders award, formerly held by tastyworks, has been won by Interactive Brokers this year. This is due to the fact that IBKR is making strides toward creating a first-rate platform, whereas tastyworks is still lacking in areas such as live news and basic research.
Thomas Peterffy, the current head of the board, established the firm in 1978 under the initials T.P. & Co. Interactive Brokers Inc. was founded in 1993 as a U.S. broker-dealer and produced the first mobile computers used for trading markets. Over that period, IBKR has established itself as the go-to platform for seasoned investors thanks to its ability to provide access to almost every kind of securities traded on the majority of marketplaces.
Global Analyst is a web tool developed by IBKR in 2021 that assists investors in locating cheap firms, while IMPACT is a trading programme that helps investors better integrate their values and portfolios. Options trading is supported in over 30 different markets throughout the world, and the business has created a number of cutting-edge technologies to improve analysis and automation.
Options traders may benefit from Interactive Brokers’ low commission rates of $0.15 to $0.65. However, the charge for users trading fewer than 10,000 contracts per month is $0.65 per contract, making IBKR a little pricey for those who deal in fewer options. If you trade above 100,000 contracts per month, your fee will drop to $0.15 per contract. Breakpoints for higher volumes per month vary with the premium. Commission-free trading (except options) and payment for order flow are two of Interactive Brokers’ most attractive features, and both depend on the firm’s top-notch execution.
Interactive Brokers’ superb options analysis capabilities are now accessible from anywhere with their mobile app. Options spread templates are included in these programmes so that traders may quickly assess several approaches and choose the one with the most favorable risk/reward ratio. In addition to displaying essential options Greeks on the quotation page and allowing fine-tuning of strategies through the modification of filters, IBKR Mobile provides one-tap options strategies that make it easy for the trader to make adjustments to different legs of the strategy. In addition to allowing traders to spread their futures options, Interactive Brokers also lets them exercise all or part of their options early and gives indications to assist them decide whether doing so is in their best interest.
Traders may use Interactive Brokers’ tools to determine the likelihood of an option’s profitability and to graph possible rewards on options strategies. In addition, Interactive Brokers has a write option tool that analysis your stock holdings to determine how many covered options to write against the uncovered stock, as well as a rollover tool for expiring options. Options analytics also provide traders with the capability to change options pricing data, including but not limited to, price, time, and implied volatility. Last but not least, Interactive Brokers’ Options Portfolio effectively and consistently monitors market data in search of low-cost options strategies that are in accordance with the user’s goals. For even seasoned traders, it’s a lot to take in, but expert traders will be pleased to have the whole collection of tools in one place.
With its cheap options fees, always improving trading and analytical tools, and unwavering dedication to timely order execution, Interactive Brokers (IBKR) is the best broker for experienced options traders.
TD Ameritrade
After last year’s triumph by tastyworks, TD Ameritrade has taken the title of “Best Broker for Mobile Options Traders”. The tastyworks and thinkorswim® platforms have been neck and neck in recent years, but tastyworks’ neglect of basic research and news has given TD Ameritrade the upper hand.
Customers of TD Ameritrade, a full-service online broker, have access to a wealth of instructional materials covering everything from the fundamentals of investing to advanced topics. In 2019, Charles Schwab acquired the firm that has been operating since its inception in 1975. Whether you’re an aggressive trader or a passive investor, you’ll find a platform at TD Ameritrade that suits your requirements. Having access to a wide variety of financial instruments in one place may be worth paying a slightly higher options commission compared to other online brokers who specialise just on stock and options trading.
In general, thinkorswim® desktop offers more features than the online and basic mobile platforms, and it can be tailored to each individual user’s needs. But TD Ameritrade’s thinkorswim® mobile app comes close to the desktop version in terms of functionality. The thinkorswim® mobile app allows you to create and manage watchlists, get real-time data streaming, and trade straight from your charts. While the thinkorswim® mobile software for iOS and Android does not yet allow users to create trend lines, it does provide superior charting than the industry standard mobile app. As a result, thinkorswim® mobile will serve as the go-to app for options traders on the go.
The mobile edition of thinkorswim® enables users to trade multi-leg options, just as the desktop version does. Traders at TD Ameritrade have the option of using the firm’s automated order routing system or sending trades directly to individual exchanges. Traders may automatically execute orders when particular conditions are fulfilled, and they can also assess the performance of past trading tactics.
TD Ameritrade, like E*TRADE, is not meant to be an options platform. It offers access to a wider variety of markets and comes with helpful extras like 24/7 support, extensive learning materials, and comprehensive financial analysis tools. Alternatives traders who need mobile access to the markets will find a wealth of options, but thinkorswim® mobile stands out among the crowd.
TD Ameritrade according to us is the Best Broker for Mobile Options Trader due in large part to the superior options analytics, research facilities, and trading tools made available through its thinkorswim® mobile app.
Options trading FAQs
Do options involve leverage?
Options contracts are designed to provide leverage for investors, allowing them to magnify the returns of their investments. However, traders should be aware that increased leverage can also lead to greater losses, which is why it’s important to understand the risks associated with options trading before getting started.
What do I need in order to start trading options?
In order to successfully trade options, you’ll need a brokerage account and access to an online options trading platform. Additionally, traders should familiarize themselves with the basics of options pricing and strategies prior to jumping into the markets. It’s also wise to practice your trades through a paper-trading account before investing real money into any positions.
How much money do I need to get started?
Most online brokers require a minimum deposit of $500 to open an account and begin trading. However, depending on the broker, you may be able to start with less money if you are willing to place a limited number of trades each month or agree to pay higher commissions for larger orders.
Quote an example of another product that acts like an option
Futures contracts are another form of derivative that act like options by allowing investors to speculate on the future price movements of underlying assets without actually owning them. Similar to options, futures offer leverage and traders can buy either long or short positions in order to benefit from both rising and falling prices. However, unlike options, futures contracts have expiration dates and are subject to the risk of early assignment.
Name options strategies commonly used by traders with a long stock position
If a trader has a long stock position, they may want to consider using options strategies to hedge their exposure. Some of the most popular strategies used by investors with long positions include covered call writing, protective puts, and collar strategies. All of these tactics involve buying or selling put and call options in order to protect against potential losses due to market volatility.
How much money do you need to trade options?
The exact amount of money you will need to start trading options depends on the online broker you choose, as some require a minimum deposit while others allow traders to open an account with no initial investment. Additionally, many brokers offer tiered pricing structures that increase with larger balances, so it’s important to consider both the size of your trading account and the type of trades you will be making when selecting a broker.
What should you consider when choosing an options trading platform?
When selecting an options trading platforms, there are several factors to consider, such as the types of assets available for trade, the user-friendliness of the interface, and the amount of data and research tools offered. Additionally, investors should pay close attention to commission structures and fees charged by the broker in order to find the best deal. Finally, it’s important to read reviews and compare platforms in order to find one that offers a secure trading environment.
How do I check what kind of options trader I am?
There are several ways to determine your options trading style and goals, such as through self-assessment tests or by talking to a professional financial advisor. Additionally, many online brokers offer educational resources and free practice accounts to help traders gain experience before investing real money into their positions. Finally, it is important to understand the different types of options strategies available and how each one may work best for your personal goals.
Conclusion
Options trading has become increasingly popular among investors and traders in recent years. With the right platform, tools, and strategies, it’s possible to make substantial profits with limited risk by taking advantage of market volatility. By understanding the basics of options and familiarizing yourself with some of the more common trading strategies, you’ll be one step closer to making the most of your options trading experience. Best options trading platforms provide an easy and reliable way to enter the market and start generating returns on your investments. With a little bit of research and some practice through a paper-trading account, you could find yourself taking advantage of the tremendous profits available in the options markets. Best of luck!
