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Best Options Trading Platforms for February 2021
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Options can be used to generate income, hedge your risk, or add more fuel to your portfolio by increasing your exposure to certain stocks and indexes. But because options are inherently more complex than simply buying stocks or funds, options traders often need to be more selective in choosing the right brokerage. In the article below, we'll outline exactly what to look for when selecting the best options broker.
The Ascent's best options trading platforms
- Mobile platform: E*TRADE
- Low fees: Robinhood
- Active traders: TradeStation
- Traders: TD Ameritrade
- Low fees: Ally Invest
- Low fees: Interactive Brokers
- Tastyworks
Rating image, 4.5 out of 5 stars.
4.5 stars
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Bottom Line
Caters to active traders with multiple trading platforms, while also appealing to long-term investors with thousands of mutual funds and ETFs that can be traded for free.
Read Full ReviewFees:
$0/options trade, $0.65/contract
Account Minimum:
$0
Rating image, 4.5 out of 5 stars.
4.5 stars
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Bottom Line
With no options trading fees and a rounded out feature set to trade stocks, ETFs, fractional shares, and cryptocurrency without commissions, Robinhood is a no frills, efficient trading platform that captures a spot as one of the cheapest options brokers.
Read Full ReviewFees:
$0 for stocks, ETFs, and options
Account Minimum:
$0
Special Offer
Get a free stock with a new account
Open Account
On Robinhood's Secure Website.
Rating image, 4.0 out of 5 stars.
4.0 stars
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Bottom Line
A discount broker that's designed for active traders and cost-sensitive investors. If you're willing to do the work to price each of the two commission schedules, you can often spend less than with other platforms.
Read Full ReviewFees:
$0/options trade, $0.50-$0.60/contract
Account Minimum:
$500
Special Offer
New accounts with qualifying assets earn $50 to $5,000 using code FOOLAFSA
Open Account
On TradeStation's Secure Website.
Rating image, 5.0 out of 5 stars.
5.0 stars
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Bottom Line
Stands out as not only one of the top options brokers but also a top rated all-around brokerage with outstanding tools and products, in-depth and comprehensive research, and no account minimums.
Read Full ReviewFees:
$0/options trade, $0.65/contract
Account Minimum:
$0
Special Offer
Trade commission-free and get up to $2,500 when you open and fund an account
Rating image, 4.5 out of 5 stars.
4.5 stars
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Bottom Line
Impresses with a low options fee per contract, while also offering $0 stock commissions and $0 account minimums. It's a great choice for those looking for an intuitive platform from which to make cheap trades.
Read Full ReviewFees:
$0/options trade, $0.50/contract
Account Minimum:
$0
Rating image, 4.5 out of 5 stars.
4.5 stars
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Bottom Line
The competitive base options commission and tiered per contract pricing, alone, land Interactive Brokers a spot on this list. The otherwise robust feature set and low fees make also make it a solid brokerage for traders.
Read Full ReviewFees:
$0/options trade, $0.25-$0.65/contract
Account Minimum:
$0
Rating image, 4.0 out of 5 stars.
4.0 stars
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Bottom Line
A true, options-first stock broker, that sprinkles in the ability to trade mostly stocks, ETFs, and futures. The standouts are its trading platform and options commission structure that's among the cheapest available.
Read Full ReviewFees:
$0 for stocks and ETFs, $1 per option contract (charged on opening trades only)
Account Minimum:
$0
What are options?
Stock options give an investor the right to buy or sell stock at a predetermined price by a specific date in the future. They derive their name from the fact they give you the option, but not the obligation, to buy or sell stock.
It's also worth noting that many investors use the term "stock options" to refer to all options trading, but there are also options on certain exchange-traded funds and stock indices.
Options come with their own unique terms, which investors should understand before making a trade:
- Call option: These options give you the right to buy stock at a certain price in the future.
- Put option: These options give you the right to sell stock at a certain price in the future.
- Premium: This is simply what each option costs.
- Strike price: The price at which the option gives you the right to buy or sell stock.
- Expiration date: The date at which the option expires. On this date, the option must be exercised, or it will expire and be worthless.
- Contract: Options are typically traded in lots of 100 shares (with a few exceptions). These lots of 100 options are called contracts. For example, one call option contract gives you the right to buy 100 shares of stock at a specified price.
An illustrative example can go a long way in explaining how stock options work, so here are examples of call and put options in hypothetical situations:
TIP
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How call options work
Let’s assume you believe that shares of Ascent Widget Company will appreciate from $50 to $70 in the next six months, and you want to make money based on this assumption.
The straightforward way to profit on this wager is to buy 100 shares of stock at $50 and hope that they increase in value to $70 shortly thereafter. If the stock increases in value as you expect, you’d turn $5,000 into $7,000, for a profit of $2,000. You’d stand to earn a 40% return on your investment.
Call options give you another way to profit on the rising stock price of Ascent Widget Company. We’ll assume that call options with a strike price of $50 are trading for $5 each and expire in 6 months. Buying these options would cost $500, since one options contract covers 100 shares. By purchasing one of these options, you have the right to purchase 100 shares of Ascent Widget Company for $50 per share at any point in time over the next 6 months.
If you’re correct about the prospects for Ascent Widget Company stock, you stand to earn a lot of money with call options. If the stock rises to $70 before the expiration date, your call options would be worth $20 each. (Each option gives you the right to buy a share of stock worth $70 for just $50 per share, so each option is worth $20.)
After subtracting the cost of each option ($5), your total profit on 100 call options would be $1,500. Making a $1,500 profit on a $500 investment is extraordinary.
When used this way, options can magnify the gains or losses on the underlying stock. But not all options trades work out so splendidly.
In order for the call options to gain in value by expiration, the stock would have to rise to at least $55 per share. We can calculate this “breakeven price” by adding the premium paid for each option ($5) to the strike price ($50) for a breakeven price of $55 per share.
If shares of Ascent Widget Company increased in value, but only to $54 per share, the call options would have resulted in a loss. That’s because if the stock is worth $54, the right to buy the stock for $50 is only worth $4 per option.
This is one reason why stock options are much more speculative than simply buying the stock. You can lose money with call options even if the value of the stock increases.
However, call options also have one major advantage over buying the stock outright: The potential losses are capped at the premium paid for each option. Even if Ascent Widget Company falls to $0 per share, the most you can lose is the $500 you paid for the call option.
How put options work
Put options work in a similar fashion as call options -- the only difference is that an investor who buys put options stands to make money when the price of a stock declines. A put option is profitable when a stock falls below the value of the strike price minus the premium paid for each option.
Let’s say you believe that shares of Ascent Widget Company will depreciate from $50 to $30 in the next six months, and you want to make money based on this assumption.
The straightforward way to profit on this wager is to sell short (borrowing shares to sell, hoping to buy them back later at a lower price) 100 shares of stock at $50 and hope that they fall in value to $30 shortly thereafter. If the stock falls in value as you expect, you would gain $20 per share, resulting in a total profit of $2,000.
Put options give you another way to profit if Ascent Widget Company’s stock price falls. We’ll assume that put options with a strike price of $50 are trading for $5 each and expire in 6 months. Buying 100 put options would cost $500. By purchasing these options, you have the right to sell shares of Ascent Widget Company for $50 per share at any point in time over the next 6 months.
If you’re correct about Ascent Widget Company’s stock dropping to $30 per share, the puts will surge in value. If the stock drops to $30 before the expiration date, your put options would be worth $20 each. (Each put option gives you the right to sell a share of stock for $50 at a time it is trading for $30 per share, so each option is worth $20.) After subtracting the cost of each option ($5), your total profit on 100 put options would be $1,500.
In order for the put options to gain in value by expiration, the stock would have to fall below $45 per share. We can calculate this “breakeven price” by subtracting the premium paid for each option ($5) from the strike price ($50) for a breakeven price of $45 per share.
If shares of Ascent Widget Company fell in value, but only to $46 per share, the put options would have resulted in a loss. That’s because if the stock is worth $46, the right to sell the stock for $50 is only worth $4 per option. You paid $5 each for these options, thus resulting in a total loss of $100.
Even though you were right that Ascent Widget Company would decline in value, the stock did not drop enough to cover the premium paid for the option, resulting in a loss even though the stock declined in value. Shorting the stock would have been a better proposition.
Of course, just like call options, put options also cap your potential losses if the stock moves in the wrong direction. If Ascent Widget Company stock rises in value to $60 per share, for example, buying put options would have resulted in a much smaller loss than shorting the stock.
Buying puts or calls is the most basic options trade. Options can get more complex, as when traders use multiple calls or puts simultaneously.
Buying a put and a call option at the same strike price, which is known as a “long straddle,” is a way for an investor to make money if a stock rises or falls dramatically, but isn’t sure which way it will go.
Top features of the best options brokers
Options traders typically demand more of a brokerage firm than people who are simply entering market or limit orders for stocks. Active option traders may prioritize brokers based on their selection of calculators or screeners, whereas the infrequent options user may care about commissions alone.
Some features that may be considered “make or break” for your decision are listed below:
- Commissions and fees: While price isn’t everything, what you pay to make a trade ultimately plays through to your profit or loss. It makes very little sense to place a trade where the only likely winner is the brokerage firm. Commissions have come down quite a bit in recent years, and most online brokers offer commission-free trading on stocks, but there's still quite a bit of difference within the industry when it comes to options.
- Platform: Admittedly, an options trading platform often has more to do with personal preference than anything else, as placing a trade through any brokerage is usually a matter of a few clicks. Some traders may see TD Ameritrade’s full-featured thinkorswim platform as an asset, while beginning investors may see the complex interface as a liability. It's also important to note that some brokers (like TD Ameritrade) offer a full-featured platform and an easier-to-use trading platform.
- Resources: Many brokers offer a full range of educational resources, which can be extremely valuable for investors who are new to options. As we mentioned, options can be very complex financial instruments and it is very easy to lose lots of money if you don't know what you're doing.
Comparing the best options trading platform on commissions and fees
Commissions and fees for options trades can vary wildly from brokerage to brokerage, and the difference can really add up. Here's a look at the costs associated with options trading, and how much our best brokers charge.
Commissions
Most of the best stock brokers have eliminated flat-rate commissions for online stock and options trades, and just use a small fee for certain options traded. That means they offer commission-free options trading, but charge a fee based on the number of options contracts traded. Thus, it costs more at most options brokers to trade 50 options contracts than it does to trade 10 options contracts.
The most common price point is roughly $0.65 per contract. So to buy 10 contracts, a trader would pay $6.50 to make the trade ($0.65 × 10 = $6.50). To buy 100 contracts, the same trader would pay $65 in commissions to make the trade.
Pricing varies wildly for the best options trading platform, as detailed in the table below. And to be clear, these are commissions for online options trades. If you conduct a trade by phone, the commission could be even higher.
The table below compares brokers based on the cost to buy or sell 10 options contracts.
Options trading fee comparison for 10 contracts
No-fee options trading used to be a pipe dream for investors, but that's no longer the case with the best options brokers slashing costs to attract and retain accounts. Here's an options trading fee comparison when trading 10 contracts for our top picks.
| Broker | Commission to trade 10 contracts |
|---|---|
| Robinhood | $0 |
| TD Ameritrade | $6.50 |
| E*TRADE | $6.50 |
| TradeStation | $5.00-$6.00 |
| Ally Invest | $5 |
| Interactive Brokers | $2.50-$6.50 |
Exercise and assignment fees
Brokers charge fees to buy or sell options, but some also charge fees if you want to exercise an option, or if an option you have sold is assigned.
- Exercise fees: Let’s say you own 100 call options on Nike at a strike price of $80. Nike rises to $85 per share by the expiration date, and you decide to exercise your right to buy the stock at $80 per share. A few brokerages will charge you a fee to exercise your options and buy the underlying stock.
- Assignment fees: Let’s say you sell a covered call on Nike at a strike price of $80. Nike rises to $85 per share by the expiration date, and the owner of the options decides to exercise them, paying you $80 per share for the underlying stock. A few brokers will charge you an assignment fee for this transaction.
Most of our picks for best options brokers don't charge these fees anymore. The exception is TradeStation, which charges $14.95 for both options exercise and assignment. If you don't plan on holding options until their expiration dates, this shouldn't necessarily be an issue, but it's still worth keeping in mind.
How to pick a broker for options trading
One key point to keep in mind is that there's no such thing as a perfect brokerage for everyone, and the costs and features should be weighed with your own preferences in mind before you open a brokerage account of your own.
For example, Robinhood has no commissions for options trades whatsoever, but its platform is very light on functionality and features, which makes it appropriate for investors who don't necessarily need educational resources and just want to dabble in basic call and put trades. On the other hand, a broker like E*TRADE charges commissions, but is packed with features and resources which could be worth far more than the commission costs for many investors.
FAQs
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Robinhood is the cheapest option broker we recommend. It has both a $0 commission for options trades and no per-contract fee. While there are other options brokers with full commission-free options trading, Robinhood goes the extra mile.
About the Author
Matt is a Certified Financial Planner® and investment advisor based in Columbia, South Carolina. He writes personal finance and investment advice for The Ascent and its parent company Bank CD rates, with more than 4,500 published articles and a 2017 SABEW Best in Business award. Matt writes a weekly investment column ("Ask a Fool") that is syndicated in USA Today, and his work has been regularly featured on CNBC, Fox Business, MSN Money, and many other major outlets. He’s a graduate of the University of South Carolina and Nova Southeastern University, and holds a graduate certificate in financial planning from Florida State University.
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