Diving into the intense world of option trading? ...Time to choose an options broker! The type of broker you wish to have will really depend on how intense you want to get with your options trading.
If you simply are buying long calls and puts you will likely not need a lot of service features from your broker.
On the other hand, maybe you have done basic option trades and want to start executing spreads or writing options. For this you will be searching for different features from your online broker and the respective trading platform.
Take a look at the chart below for a comparison of options broker specifications:
Click on specific online broker names below to see their details:
Commissions in options usually come in two structures:
1. Per Contract Charge
The price of each contract is the exact same no matter how many you trade.
e.g. If it is $1.00/contract and you buy 50 contracts, the total will be $50.00.
2. Flat Fee + Per Contract Charge
There is a flat fee for simply executing an options order, plus there is an additional fee for every contract entered into.
e.g. If there is a flat fee of $7.99 + $0.50 per contract and you buy 50 contracts, the total will be $32.99.
Important to note that the flat fee type (#2 above) is not always cheaper. Typically for #2 it will actually cost more unless you are an active trader. The flat fee and per contract amount reduces with many brokers if you trade enough contracts in a month.
To get the details as to the fee structures for option brokers, click the broker names in the above table.
Each options broker offers a certain trading platform. Typically you are most likely to use the proprietary platform offered by the broker.
This is because most brokers that offer option trading provide the tools to analyze profit and loss graphs for option strategies as seen to the left (instead of a candle/line chart that is used to see the movement of stock prices).
Option pricing and sensitivity to stock movements can get very technical. Various factors go into pricing options.
If you are a novice trader just going long a call or put there are three things to forecast. You not only have to get the direction of the stock right, you have to determine the magnitude of the direction (how you base your strike) and timing (how you base your expiry).
Of course with other strategies you can just do a volatility play so no need to know which way the stock is going but I'm not here to teach you these strategies (...at least for now...).
There are A LOT of strategies that can be used. If you are serious about options trading, you will need to learn more than just buying a call or put.
Options brokers offer tools help visualize option strategies, break-even points and what price the stock needs to hit to make a certain profit.
The image presented here is one of the most basic option strategies which is simply to go long a call option. If you have no idea how to read that, don't worry! A lot of brokers provide the education you need to get started - of course because they want you to trade with them so they can make more commissions.
Not all brokers that offer options trading provide good option analysis tools. Click on the options brokers above to learn what tools are provided and see if they fit your needs!
More likely than not, your options broker will require you to fund your account with a minimum amount.
Now with options, depending on what type of strategies you want to use, the threshold for minimum amounts can vary.
For example, the account minimum can change based on if you are (1) just going long calls and puts (2) engaging in spread strategies (3) writing uncovered options
Once again, check out the links for the option brokers above to get the details!
These reports will be the same ones provided as for stock trading. They are analyst reports based on the company for which its shares trade on the exchange.
Online brokers typically provide some sort of research reports from big banks/investment firms (free or a certain fee). They will describe essentially how the company makes money and the research firm's projection of what the value of the company is - They are hugely "buy" biased.
They are very optimistic about the future. But the reason for the bias is mostly that these banks that put out research reports on a company, many times have that same company as their own client. They help the client with things like share/bond issuance, so it is not in their interest to write bad things about the company or they could lose business. This is disclosed in the reports but doesn't change the bias...