Option trade broker review

The Best Options Broker.

Latest Update October 28, 2016.

The best options trading platform isn’t going to be an afterthought tacked on to an existing suite of products: it should be robust and easy to use. Beginners need enough support to learn the ropes and experienced traders are after low fees and powerful tools. We signed up, assessed the fees, took the tools for a spin, and narrowed it down to three top picks. The one that's best for you depends on what you’re after.

Tons of online and in-person support, plus a practice platform that lets you try everything out with “paperMoney.” The downside? Higher fees.

Rock-bottom pricing, but no research or strategy support.

Unrivaled tools & research with pricing that favors active traders.

There are a lot of brokers that are perfectly capable of trading options — nearly all of the big (read: old-school) names have an options platform integrated into their suite of offerings. But for those looking to really dive in, whether as a beginner just starting out or an active trader looking to level up, the best platform won’t be something that’s just tacked on.

How We Found the Best Options Broker.

To find the brokers that cater specifically to options, we looked at 36 choices and analyzed their products. We prioritized the most important aspects:

Cost matters a lot when it comes to trading options. It’s the very nature: part of the appeal of options is that the returns can be major even if you don’t fork over a lot of cash up front, and many traders use options as a cheaper alternative to going long on a high-priced stock. Fees can add up and even wipe out the profits from any profitable trades. Granted, slightly higher fees may be worth it if a broker can provide other perks (say, excellent resources and education for beginners), but we wanted all our picks to have competitive pricing. We also wanted to avoid minimum balance requirements, or a set number of trades per month.

Easy-to-use interfaces are a make-or-break for most platforms. The price of options contracts can swing a lot over the course of a trading day; poking around a clunky options chain can literally cost you.

Education and resources are important, especially for investors who are getting their feet wet. Sure you’ve got a handle on multi-leg options trades, but do you know when it’s the right time for a bull call spread? What’s an iron butterfly? Not all traders will need hand-holding, but we wanted to find at least one excellent options broker we could recommend to newcomers.

Flexibility can be interpreted a few ways. For us, it meant the robustness of the platform (could we research and purchase stocks and ETFs in addition to options?); its flexibility (could we streamline a multi-leg options trade, or did we have to input them all separately?); and whether or not we could customize it to our liking.

It was quick work to eliminate the most expensive platforms, as well as the ones that had absolutely no resources or reports. To test ease of use and flexibility, we signed up for accounts and simulated making trades on all the rest. Three brokers rose to the top, and each brings something unique to the table.

Our Picks for Best Options Broker.

Best for Beginners.

TD Ameritrade Higher fees on an ultra-easy platform. Plus, tons of support and education.

TD Ameritrade is one of the largest online brokerages in the market today, with over 7 million funded customer accounts and over $700 billion in total client assets, and despite its slightly higher prices, it provides the best platform for a beginner trading any product, options or otherwise.

For more novice traders, the platform supports the jump from trading stocks with the funds in an IRA to more sophisticated products like options. It’s robust, plus it has the customer service and educational resources to make the transition. There are webinars and hours of on-demand videos that’ll teach you about options strategies and how to literally execute those strategies on the platform.

TD Ameritrade is a full-service broker, and that full service (we’re talking 24/7 customer service and 100 branches for face-to-face consultations) does come with higher fees. Barron’s agrees, awarding it “best platform for novices” five years running. We can anticipate its service only getting better too. In 2016, TD Ameritrade started the process of acquiring Scottrade, another platform known for it’s in-person customer service offerings.

In fact, TD Ameritrade is one of the best platforms for all levels of investors, serving up two discrete products: thinkorswim and Trade Architect. Thinksorswim is a desktop platform designed for an all-around trading experience: charts with real-time data, news tickers, 300-plus technical studies, alerts and alarms, heat mapping, options screeners, securities scanner, and more, all accessible in a single click. It’s definitely for seasoned investors — newcomers will likely be overwhelmed — but it’s worth bringing up because a virtual playspace called paperMoney allows even total novices to cut their teeth without risking even a single penny.

We recommend beginners stick to TD Ameritrade’s web-based platform Trade Architect. It is nowhere near as robust as thinkorswim (and has nowhere near as jazzy a name), but it provides everything a new investor would want and it’s ultra-easy to use. It’s not bogged down with all the bells and whistles and live-streaming CNBC. Tabs at the top are simply categorized under jargon-free headings: account overview, watch lists, alarms, idea generators, and heat maps. Unlike thinkorswim, the platform is customizable. If you want more widgets, like say, additional stock tickers or video, they’re there for the adding.

If beginner investors use TD Ameritrade’s education library to learn the ropes, practice using paperMoney in thinkorswim, and then easily execute trades with Trade Architect, the slightly higher fee may suddenly seem worth it.

Lowest Fees.

OptionsHouse The lowest fees and no minimum balance requirements.

OptionsHouse isn’t the most recognizable name in the industry, and that’s probably because this online broker hasn’t pursued an aggressive marketing campaign like some of the other brokers out there (remember E*Trade’s old Super Bowl ads?). The company was founded in 2005 and was established to specifically provide options traders who demanded lower fees from the then burgeoning online brokerage industry. Those low fees are still what makes OptionsHouse so popular.

There’s a $0 minimum deposit to join and options trade at $4.95 + $0.50/contract (stocks trade at a flat $4.95 fee). This is the lowest price in the industry. Only TradeKing comes close — matching that $4.95 options base fee, but charging $5 more than OptionsHouse for the exercise fee.

The OptionsHouse platform is striking if a bit chaotic — there are buttons, tabs, and menus all over the place. It’s intuitive and there’s a tutorial to walk you through, but to a beginner it might seem more like sitting in front of the controls of an aircraft than is comfortable. Beginners take note: OptionsHouse does have a virtual platform that’s great for practicing. And, the tradeLAB makes dissecting options spreads simple — the green smiley face is good; the red frown is no good.

What you won’t get for those low fees is strategy and research: OptionsHouse has about 30 technical studies; TD Ameritrade has 300.

It’s important to note that E*Trade purchased OptionsHouse for a whopping $725 million in 2016. It is still unclear how any pricing structures or account features and perks will change after the sale is completed, but an OptionsHouse blog post suggests that E*Trade’s tools and services will become available after the platforms merge.

Best Tools and Research.

optionsXpress A one-stop shop within a major firm, with an options-native platform.

OptionsXpress was purchased by Charles Schwab back in 2011 to enhance Schwab’s competitive edge in options trading. The result is a one-stop shop with an options-native platform that’s pretty whiz-bang.

Everything happens through the desktop platform, Xtend, but all the trading tools are also on the optionsXpress web platform. It’s fully customizable, and it’s easy to find real-time quotes and market data, news and reports, and company background information. The Idea Hub scans the market for volatility, earnings, and income-based strategies and offers new trade ideas. With Walk Limit, you can set a few parameters, and it will scan updated market data and re-create an order you may have made at a higher price in the past. Sign up for the Xpresso newsletter and you’ll get a daily alerting you to the day’s risks and opportunities.

Add to that an impressive library of educational resources, as well as access to all of Charles Schwab’s investment research (and free access to its seminars and meetings at local branches), and a virtual trading platform that helps beginner investors practice all types of trading with $25,000 in fake cash. If you need help from a broker — to calm your first-timer nerves or to walk you through a complex strategy — they’re ready to help and totally free, too.

The standard rates are steep, so we don’t recommend optionsXpress to the casual trader. Make more than 35 trades a quarter and you’ll click into “Active Trader” status and your fees will go down. Trade in volumes and there’s another discount; trade contracts under a nickel and there’s another discount. This is all to say the price structure favors the active. And while optionsXpress has a $0 account minimum and does not charge any annual or inactivity fees, if you leave, there is a $60 full outgoing transfer fee.

The Best Options Broker at a Glance.

Did You Know?

Options are contracts that allow an investor the right, but not the obligation, to buy or sell an asset on or before a set date.

Here’s an example: Say you are a buyer looking for a specific vintage car and you end up finding one you just have to have. When you find it, however, you know you won’t have any cash to buy it for another six months. You then negotiate with the owner to give you an option to buy the car in six months for a specific amount. If the owner agrees, you pay him a percentage up front for that option. The same scenario applies in the stock market – just for financial assets instead of vintage cars. If you were trading stocks, you’d be actually buying the car. Or, rather, not buying it since you didn’t have the money.

Because options are simply options and not promises, if something happened to that vintage car — say it was sitting in the driveway and a tree fell on it — you wouldn’t have to buy it. You’d still be out the price you paid for the options contract, but at least you wouldn’t have lost all that money on a now-worthless pile of steel. And, if in those same six months something happens that makes the car go up in value, well, hey, you’ve already locked in your price.

The Bottom Line.

If you’re new, you should prize learning tools. If you’re experienced, you’ll need to choose between low cost or amazing tools. No matter what, options trading shouldn’t be an afterthought tacked onto your platform.

Take Action.

Best for Beginners.

TD Ameritrade TD Ameritrade fees might be higher, but sometimes you get what you pay for.

Consider your entire investment strategy. Don’t make your final decision solely based on options trading if it’s not the only kind of trading you’ll be doing. These online brokerage firms all offer a variety of investment opportunities. You may want to take into account their extra perks or the price of their mutual funds, for example.

Know your expirations. Options are contracts that expire if they’re not acted on and an expired contract is worthless. Make sure you understand your expirations and set reminders using your broker’s platform, or on your calendar if you’re not trading every day.

We find the best of everything. How? We start with the world. We narrow down our list with expert insight and cut anything that doesn't meet our standards. We hand-test the finalists. Then, we name our top picks.

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OptionsHouse Review.

OptionsHouse has a winning combination of low trading costs and fees plus some of the best options trading tools around. They may not offer the same additional resources as other brokers, but that wouldn't be your primary reason for choosing OptionsHouse in the first place.

Latest Update November 11, 2015.

Extremely low trading costs and fees.

Probably the single best thing about OptionsHouse is their competitive prices. Trading rates for new clients recently got bumped up from $3.95 to $4.95 per trade, but these rates are still among the lowest in the industry. Plus, OptionsHouse has a unique pricing structure for options traders where you pay $4.95 for an options trade plus $0.50 per contract.

Variety of proprietary tools built into web-based platform.

OptionsHouse doesn’t simply offer you a clean, modern web-based trading application—they also include a number of proprietary tools to aid your trading. One of those unique trading tools is the Trade Generator, which produces a set of potential trade ideas based on criteria like risk appetite or time frame. If you’re a more advanced trader, you will find that the Spread Investigator tool comes in handy. It scans all of the equity options for call and put debit spreads that can potentially deliver high returns.

Fully customizable trading interface.

The web-based trading platform offered by OptionsHouse is simple to navigate and understand. Perhaps the best feature is the ability to customize the entire interface by minimizing, adding, or removing different sections to the home screen layout. In addition to that, you can open one of these sections as its own separate window so it will detach from the main browser window you originally opened it in. This gives you the ability to spread your trading experience across your entire screen if you wish. It can also be beneficial to have multiple windows open so you can look at a number of indicators at the same time you are researching or executing your trades.

Quick order entry and account navigation.

When you open the OptionsHouse trading platform, you will notice that options trading is a heavy feature (hence the product’s name). The quick order entry ticket allows for some of the fastest options trading in the industry. You can instantly add an option leg or a stock leg in one click after typing in a stock quote. OptionsHouse also offers a Quick Launch button in the bottom-left corner of the screen that will completely simplify your navigation. Just click the button and anything you would need is launched in a separate window.

Extensive options trading tools.

A review of OptionsHouse wouldn’t be complete without commenting on their options tools, which are some of the best and most useful around. Within the Options tab in your account, you can view options chains, vertical options, an options calendar, and several types of option spread choices. In addition to the aforementioned Spread Investigator and Trade Generator tools, OptionsHouse also offers Risk Viewer, which provides insight into your profits and losses, market risk, and options exposure.

Innovative mobile application.

The OptionsHouse mobile application is available for Android and iPhone. The iOS application will also work on an iPod or iPad. The app is simple to use and easy to navigate. You can make trades, set up watch lists, and create alerts. One nice feature about the mobile app is that it provides you with tips to help you navigate when you log in. This is useful because oftentimes iPhone applications have some unique features that you won’t even notice unless you stumble upon them by accident. One feature highlighted by the app is the ability to quickly place a trade by clicking on the bid or ask price of a stock.

Limited investment product access.

By name, OptionsHouse primarily exists for options traders, but they still offer access to a variety of other investment products. Unfortunately, you can’t access forex or international markets with an OptionsHouse account. It’s the assumption, though, that you wouldn’t be interested in trading with OptionsHouse if you are placing a high value on having access to these investment products, so this shouldn’t be a deal breaker for most traders, especially options traders.

Lacking financial resources offered by major brokers.

If you choose OptionsHouse as your broker, you should know that you will not have the same type of additional financial resources that a full-service broker provides. Thus, if you need banking services or access to credit and debit cards, you should look elsewhere. OptionsHouse also does not offer college savings plans or small business tools.

No asset protection guarantee.

In terms of account security, many brokers offer an asset protection guarantee against any unauthorized access to your account. OptionsHouse does not offer this guarantee, which means that the assets in your account are not covered should an unauthorized person to use your account. Without the knowledge of how often this activity occurs, it’s difficult to say how significant that guarantee may be. However, it is comforting to know that you are not on the hook for any losses you may not be responsible for.

Limited research and charting capabilities.

One of the major knocks on OptionsHouse is the minimal amount of research they provide. There is no third-party research available and many of the other research amenities don’t have the level of depth that you will find elsewhere. The charting capabilities are pretty weak overall, so if you trade with OptionsHouse you may want to consider using a third party to view charts, which can be somewhat frustrating.

The Details.

Broker Assisted Trades: $25 Futures Contract Fee: $2.00 Maintenance Fees: $0 Margin Rates: 2-6.5% Minimum Account Balance Fee: $0 Mutual Funds Fee - Load: $9.95 Mutual Funds Fee - No-Load: $9.95 Options Contract Price: $0.50 Options Flat Fee: $4.95 Stock Flat Fee: $4.95.

ACH/EFT Withdrawal: $30 Bounced Check: $30 Check Withdrawal: $0 Domestic Wire Withdrawal: $25 Forced Margin Sellout: Regular commission Full Account Transfer: $50 IRA Annual Fee: $0 Partial Account Transfer: $0 Stop Payment on Check: $30 Telephone Orders: Not offered.

Similar Products.

We find the best of everything. How? We start with the world. We narrow down our list with expert insight and cut anything that doesn't meet our standards. We hand-test the finalists. Then, we name our top picks.

Interactive Brokers: A Review for Options Trading.

Here's a review of Interactive Brokers from the perspective of an investor who uses stock options in his or her portfolio.

Stock options are more than just a way companies pay their workers. Investors can buy and sell stock options to hedge their portfolio, generate income from covered calls, and speculate on short-term moves in stock prices to earn higher returns on their investment. As some brokers prioritize options trading over other types of investing, it's important to pay attention to the details before opening a new brokerage account.

Let's review how Interactive Brokers compares for investors who want to use stock options in their portfolio.

Standard trading commissions.

Interactive Brokers uses a variable commission schedule that makes it stand out in the world of stock and options trading. Rather than pay a mostly fixed rate, Interactive Brokers' commissions vary by trade size and the value of each option.

Stocks and ETFs.

$0.005 per share ($1.00 minimum)

Options worth $0.10 or more.

$0.70 per contract ($1.00 minimum)

Options worth more than $0.05 but less than $0.10.

$0.50 per contract ($1.00 minimum)

Options worth less than $0.05.

$0.25 per contract ($1.00 minimum)

Data source: company website.

Importantly, Interactive Brokers also offers a variable commission schedule under which options, stocks, and ETFs can be traded at even lower prices. Commission prices generally decline with volume, which is advantageous for its most active clients. Learn more about special offers for opening a new account, which can add up to thousands of dollars in value in the form of commission-free trades and cash bonuses.

Multi-leg options and exercise and assignment fees.

While it's relatively straightforward to buy a call or put option, some strategies require simultaneous orders of different options contracts. The long strangle option strategy requires the simultaneous purchase of a call and a put option, for example. Depending on your broker's commission schedule, these options trades can become costly, and quickly.

Type of Transaction.

Fees and Commissions.

Buy to close fee for low-cost options.

Standard commission schedule.

Data source: company website.

Interactive Brokers' commission and pricing schedule is designed to benefit traders who make use of complex strategies, or who intend to hold their options to exercise or assignment. The broker doesn't charge a fee when options are exercised or assigned, and its commission schedule offers lower prices for low-priced options contracts. It is one of a few brokers that don't charge for this occurrence.

People who use covered calls, for example, would prefer a variable commission schedule like that offered by Interactive Brokers, as commissions decrease with the price of an option. When you write a covered call, you are effectively shorting an options contract. As the options contract declines in price, buying to close the position will incur a smaller commission. For example: You might pay $0.70 per contract to write covered calls worth $1.00 each. Later on, the option price might fall to $0.05 per contract, at which point you'd pay a commission of just $0.25 per contract to buy-to-close the contract.

Similarly, those who want to buy low-priced puts or calls will pay a lower commission to do so, resulting in commissions that make up a lower percentage of the amount invested.

Interactive Brokers' stock option commissions decline with the price of a put or call option. Image source: Getty Images.

Options research tools.

Although discount brokers are known for offering less in the way of research and support, many offer free access to research and trading tools designed to help their investors make better investment decisions. Many of these tools come free just for having an account.

Interactive Brokers' Options Analytics tool allows you to explore an options contract from the perspective of profitability, max gain or loss, and view the "Greeks," which are automatically calculated next to each contract. These tools can be especially useful for investors who use more sophisticated options strategies.

Minimum deposit requirements for options trading.

Interactive Brokers currently requires a $10,000 minimum deposit for most investors, although this minimum is decreased to $5,000 for IRAs, and $3,000 for individuals who are 25 or younger.

After making a minimum deposit, investors will be able to complete basic options trades. More complicated strategies and those that involve higher risk -- selling naked puts or calls -- will typically require a higher equity balance, and minimums are subject to change depending on the brokers' assessment of the risk of each trade.

Keep in mind that Interactive Brokers waives minimums on accounts with a balance of $100,000 or more. However, for those who don't meet the minimum account balance requirement, Interactive Brokers requires that traders generate at least $10 in monthly commissions.

Accounts that don't meet the minimum trading volume requirement will have their monthly commissions automatically rounded up to $10 during that month. For example: A client who spends $5 on commissions in one month will see an extra $5 fee added on during the month to bring that person up to the minimum commission level. This may make it less attractive to people who don't intend to keep a high balance or don't anticipate trading frequently.

Interactive Brokers as an options broker.

Interactive Brokers is designed with the active trader in mind. Its commission schedule favors active options traders, as well as those who hold options until exercise or assignment, as it doesn't charge a fee for either event. That said, its higher minimum deposit requirement as well as inactivity fees ($10 minimum monthly commissions) may not make it cost effective for the infrequent options trader. To be clear, The Motley Fool does not endorse any particular brokerage, but we can help you find one that is a good fit for you. Check out the Fool Broker Center to compare several brokers all on one page and to see if you qualify for extra perks just for opening an account.

Jordan Wathen owns shares of Interactive Brokers. The Motley Fool recommends Interactive Brokers. The Motley Fool has a disclosure policy.

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