Intermediate and sophisticated investors and traders use stock options to manage and mitigate market risk. Although not essential to ensure adequate portfolio diversification, options have tremendous strategic value and can dramatically increase returns when the bets they enable pay off.
Of course, options trading is not without risk, which is why the novice investor would do well to steer clear of them absent close supervision by a more seasoned market hand. But that same novice investor shouldn’t interpret this caution to extend to online stock brokers that offer options trading. On the contrary — when you’re ready to purchase your first option contract, you’ll embrace the opportunity to do so with the same brokerage that handles your stock and exchange-traded fund (ETF) trades.
In the meantime, open an account with one of the online brokerages on this list and familiarize yourself with the ins and outs of its trading process, research capabilities, and account management tools. For best results, complement your brokerage account with a subscription to a premium options research platform — we recommend Motley Fool Options — to get acquainted with the options market. Soon enough, you’ll feel comfortable taking the next step in your journey as an investor.
Best Stock Brokers for Options Trading
These are among the best online stock brokers for low-cost options trading. Most offer free stock and ETF trading as well, making them one-stop shops for investors looking to build diversified equities portfolios.
Robust Array of Research Tools; Very Low Contract Pricing
TD Ameritrade has long been regarded as one of the best brokers for free stock trading and individual retirement account (IRA) custodianship, but its low-cost options trading — just $0.65 per contract — is an even bigger selling point for advanced traders and investors.
What makes TD Ameritrade one of the best options brokers on the market is a wide array of research and educational tools that many competing brokerages can’t match. These include articles and videos on options and options trading strategies ranging from introductory to expert, 24/7 support from an expert desk staffed by former traders, and access to the TradeWise advisory newsletter — a trove of options insights. If you plan to try your hand at options day trading, look into TD Ameritrade’s professional-grade thinkorswim platform, which is built to help at-home traders keep up with market-makers.
- Plans and Pricing: TD Ameritrade charges no commissions on options trades, but there’s a $0.65-per-contract fee for executed trades. See TD Ameritrade’s brokerage fees page for more details on fees and commissions for other investment products.
- Account Opening Bonus: There’s presently no account opening bonus. Check back for the latest offers.
- Minimum Required to Invest: There’s no minimum deposit required to open a TD Ameritrade account. However, TD’s margin trading service requires at least $2,000 on deposit.
Very Low Contract Pricing; Managed Portfolios Available
You Invest by J.P. Morgan is one of the best stock and options trading platforms for beginners. Like TD Ameritrade, You Invest doesn’t charge commissions on self-directed trades. Aside from a low per-contract fee of $0.65, you’ll pay nothing out of pocket to trade options through its You Invest Trade vertical.
Despite its no-frills appearance and bargain-basement pricing, You Invest is much more than a place to trade options on the fly. You Invest Trade sits next to a tax-optimized managed portfolios offering, You Invest Portfolios, that’s appropriate for passive investors in the market for the long haul. It’s perfectly okay to open and run a You Invest Trade account side by side with a You Invest Portfolios account, using options contracts held in your You Invest Trade account to smooth out volatility in your long-term portfolio’s stocks, ETFs, and no-transaction-fee mutual funds.
- Plans and Pricing: You Invest Trade does not charge commissions on options trades, although there’s a $0.65 fee per contract. You Invest Portfolios charges a 0.35% annual advisory fee on all balances under its management.
- Account Opening Bonus: There’s presently no account opening bonus. Check back for the latest offers.
- Minimum Required to Invest: The minimum to open a You Invest Trade account is $1. You Invest Portfolios requires a $500 minimum deposit.
3. Ally Invest
Very Low Contract Pricing With Managed Portfolios Available; Excellent Account Opening Bonus
Ally Invest is the investing arm of Ally Bank, a pioneering digital bank. Like You Invest by J.P. Morgan, it pairs an affordable self-directed trading platform with a low-cost robo-advisory solution. Ally Invest’s robo-advisor is actually free for clients who consent to keep at least 30% of their portfolio in cash. And the self-directed side comes with one of the best brokerage account promotions available right now.
For self-directed investors, Ally Invest has a robust trove of market analysis and research tools, plus extensive educational capabilities that increase its appeal to first-time investors. Its detailed introduction to options page is a fantastic resource for budding options traders who aren’t quite sure where to start.
Meanwhile, Ally Invest’s robo-advisor platform leverages Ally Bank’s high-yield savings account, which offers one of the better interest rates in the online banking space, to grow investors’ cash reserves. Like You Invest, aspiring options traders can feel comfortable running a managed portfolio alongside a self-directed, options-aided account here.
- Plans and Pricing: Ally Invest’s self-directed platform does not charge commissions on stock, ETF, and options transactions. The per-contract fee for each options trade is $0.50. Ally Invest’s managed portfolios platform does not charge advisory fees on accounts with cash reserves of at least 30%. Otherwise, the advisory fee is 0.30% of assets under management (AUM) on all balances.
- Account Opening Bonus: Open a new self-directed account with Ally Invest by December 31, 2020, and make a qualifying deposit of new money or assets to earn up to $3,500 bonus cash. Bonus tiers range from $50 on deposits of $10,000 to $24,999 to $3,500 on deposits of $2 million or more.
- Minimum Required to Invest: The minimum for managed portfolios is $100. Self-directed portfolios have no minimum opening deposit or balance requirements.
Powerful Trading Tools; Very Low Contract Pricing
TradeStation has a powerful options trading setup built for active, experienced investors seeking the flexibility to trade on the go. Contract pricing starts at just $0.50 per contract for mobile-friendly TS GO members. TS SELECT members, who enjoy a more comprehensive array of desktop trading capabilities, pay $0.60 per contract. If you’re new to the options game, download TradeStation’s Ultimate Guide to Trading Options for a crash course.
- Plans and Pricing: Options trades cost $0.50 per contract (TS GO) or $0.60 per contract (TS SELECT). Stocks and ETFs trade commission-free.
- Account Opening Bonus: Earn a bonus up to $5,000 when you open an account and transfer new funds in. The eligible cash reward ranges from $50 for transfers between $5,000 and $25,000 to $5,000 for transfers of $5 million or more.
- Minimum Required to Invest: There’s no account opening minimum for TS GO members, although you’ll need to transfer at least $5,000 in new funds to earn an account opening bonus. The minimum deposit for TS SELECT is $2,000.
Global Options Trading at Reasonable Cost
InteractiveBrokers is the best choice on this list for high-volume options traders seeking customized per-contract pricing on their preferred instruments and access to options markets outside North America. Pricing is admittedly complex, but it’s broadly reasonable, with pricing for low-premium contracts starting as low as $0.10 apiece and possibly lower at higher volumes.
- Plans and Pricing: Choose from tiered or fixed pricing based on your trading patterns and strategy. Per-contract pricing begins as low as $0.10 apiece and possibly lower for higher-volume trades, but $0.25 to $0.50 per contract is more common.
- Account Opening Bonus: There’s currently no account opening promotion. Check back for the latest offers.
- Minimum Required to Invest: There’s no account opening minimum here.
6. Zacks Trade
Low Contract Pricing; Powerful Options Research Tools
Zacks Trade is designed for active traders who know their way around the equities markets and aren’t shy about using advanced strategies to manage risk. In short, it’s one of the best online brokers for options traders, although its $0.75-per-contract fee is a bit higher than better-known competitors.
If you’re still relatively new to the options game, spring for a Zacks Options Trader membership, which offers a near-real-time look-in at the options trading strategies employed by Zacks’ expert traders. Even if you don’t, don’t be shy about taking advantage of Zacks’ legendary trader support resources.
- Plans and Pricing: Options trade commission-free, although there’s a $0.75 fee per contract. Stock and ETF commissions start at $0.01 per share (minimum $1).
- Account Opening Bonus: None.
- Minimum Required to Invest: The minimum deposit to open an account is $2,500.
No Contract Fees
Robinhood brought commission-free trading into the mainstream years ago. Today, it’s a pioneer of totally free options trading — no commissions or contract fees, period. Although Robinhood’s relative lack of educational resources and research tools makes it a better fit for confident investors able to do their research elsewhere, it’s difficult to argue with the pricing model. Plus, Robinhood’s lineup of stocks and ETFs makes it a legitimate one-stop shop for investors seeking diversification.
- Plans and Pricing: Robinhood doesn’t charge commissions or contract fees on options trades. However, certain transaction types and account activities do result in fees, and standard regulatory fees may also apply. See Robinhood’s complete fee disclosure document for more details.
- Account Opening Bonus: Apply for a new Robinhood brokerage account and get approved to receive a free stock worth $2.50 to $200 per share.
- Minimum Required to Invest: There’s no minimum deposit required to open an account.
No Commissions or Contract Fees
Webull is a commission-free online stock broker that, like Robinhood, does not charge options contract fees. Designed for the active, globally minded trader, it boasts an impressive array of analytic tools, extended-hours trading for night owls looking to capitalize on news and market moves in overseas markets, and impressive screening tools that help users hone their risk-management strategies. Plus, it has one of the best account opening bonuses around. Talk about a great value.
- Plans and Pricing: Webull is totally commission-free and doesn’t charge options contract fees.
- Account Opening Bonus #1: Sign up to open your account and receive a three-month Level 2 Advance (Nasdaq TotalView) subscription (a $45 retail value) for free.
- Account Opening Bonus #2: Make an initial deposit of $100 or more to a new account to claim two free stocks valued between $8 and $1,600 each per share.
- Minimum Required to Invest. There’s no minimum opening deposit required.
One of the most common and pernicious myths about investing in the stock market is that it’s too complicated for the average person. Were this true, it’s unlikely that more than half of all Americans — 55% according to a Gallup poll taken in 2020 — would report owning stock with online brokers like the ones on this list.
To be sure, Americans’ participation in the options markets isn’t quite so broad. Most Americans who own stock don’t also purchase options contracts, not least because options contracts aren’t essential to the construction of a diversified portfolio with a long time horizon. Options hedge near-term market risk; they’re less useful over timescales measured in years or decades.
Still, for active investors with enough market experience to avoid getting burned, options trading can pay dividends. (Not literally, of course.) If and when you’re ready to add options exposure to your investing repertoire, you’d do well to circle back to the “options” on this list.
What’s your preferred online platform for options trading?
Originally posted at https://www.moneycrashers.com/best-options-trading-platforms-brokers/