Best Options Trading Platforms 2022

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Best Options Trading Platforms 2022

Work-life balance was flipped upside down from 2020 to 2021 as individuals throughout the globe battled to cope with unprecedented pandemic limitations. As the new work-from-home trend gained popularity and families were inundated with government aid, a new breed of retail traders found the leverage that options provide. From 2020 to 2021, the options market saw record trading volumes, with retail traders accounting for 25% of the total in 2021. However, in 2022, a new regime of more restrictive monetary policies has turned the tide on all market players, forcing many to learn that equities often fall faster than they rise. In this analysis, we look at the top online brokers for trading options in order to assist investors select which platform provides the greatest combination of education, speed, pricing, tools, research, and more to meet their requirements.

Best Brokers for Options Trading:

tastyworks: Best Options Trading Platform

  • Account Minimum: $0
  • Fees: $0 for stock transactions, $1 to begin options trades (limit at $10 per leg), and $0 to cancel options trades.

Why We Chose It

We selected tastyworks as the Best Options Trading Platform because to their incredibly competitive options trading fees, fantastic options trading tools, and outstanding options-focused education and live video material.

Pros
  • Competitive commission rates for options

  • Multiple tools for analyzing and monitoring options trades

  • Library of options-specific content and educational material

  • Focus is more on trading than investing

Cons
  • Limited investment options

  • The emphasis on trading and options leads in poor portfolio analytics.

  • No news or fundamental analysis

Overview

Tastyworks, which was introduced in 2017 by tastytrade, was produced by the same team that designed and developed TD Ameritrade’s great thinkorswim® program. The creators were motivated to establish a platform that would provide self-directed retail traders with market access and advanced research tools. Tastyworks caters to more active investors/traders, since it exclusively provides stocks, ETFs, options, and cryptocurrency trading.

Tastyworks has exceptionally low costs for trading options. While they charge $1.00 per contract to start each leg of an option trade, they have a fee maximum of $10 per leg for each option deal, regardless of size. A clearance fee of $0.10 per contract is also levied. Tastyworks, unlike other brokers, does not charge a fee for closing positions. While a consequence, tastyworks has relatively reasonable rates for options trading, as many brokers charge on both the open and close option, with no fee maximum.

For example, at tastyworks, creating and closing a 50 lot vertical call spread (total of 200 contracts traded to begin and close the position) costs just $40—the maximum of $10 per leg for the two legs ($20), plus the $0.10 clearing charge for 200 contracts ($20). For larger volume/frequency traders, the identical deal at E*TRADE would cost $100 utilizing their $0.50 charge per contract. The identical vertical spread deal would cost $60 at tastyworks ($20 for the two legs plus $40 in clearing costs) and $200 at E*TRADE. Tastyworks’ pricing is competitive for all options traders, but it becomes much more competitive for high-volume, high-frequency traders.

Deliciousworks does not scrimp on options analytics, platform workflow, or trade input in addition to these minimal fees. Tastyworks’ powerful options analytics include Greeks for specific multi-leg strategies, profitability graphs for options positions, and a simple order entry that automatically sets up the trade structure when specific options strategies, such as a vertical spread or butterfly, are selected using an intuitive drop down menu. From there, changing the expiry dates and strike prices for an option strategy is simple. The program also calculates the likelihood of certain option strategies becoming profitable.

Tastyworks’ desktop and mobile platforms are meant to closely resemble each other for consistency, while certain items must be changed to accommodate for the mobile app’s reduced screen size. Tastyworks offers real-time streaming quotations but not basic research or live streaming news. Tastyworks does have a Follow Traders option that enables users to keep track of the trades of their in-house celebrity. Customers rate Tasyworks’ customer service as swift and competent, with Trustpilot indicating a 4.4/excellent rating from more than 100 reviews.

TD Ameritrade : Best Broker for Mobile Options Traders

  • Account Minimum: $0
  • Fees: Free stock, ETF, and per-leg options trading commissions. $0.65 per options contract.

Why We Chose It

We nominated TD Ameritrade as the Best Broker for Mobile Options Trader category winner based mostly on the excellent options analytics, research facilities, and trading tools provided by its thinkorswim® mobile app.

Pros
  • Broad range of product offerings

  • Excellent educational materials

  • Solid options analytics on thinkorswim®

  • The strong desktop and mobile platforms are almost equivalent.

Cons
  • Higher than other brokers

  • No fractional shares trading

  • No automatic sweep of uninvested cash

  • Cryptocurrency trading limited to futures on Bitcoin

Overview

This year’s Best Broker for Mobile Options Traders winner is TD Ameritrade, who dethroned previous year’s victor, tastyworks. In recent years, the tastyworks and thinkorswim® platforms have been in a close competition, but it was tastyworks’ lack of news and basic research that enabled TD Ameritrade to take the lead.

TD Ameritrade is a full-service online broker noted for its outstanding teaching offerings that teach consumers the fundamentals of investing and beyond. Charles Schwab acquired the firm in 2019 after it was created in 1975. TD Ameritrade also provides a diverse selection of asset classes, and the various platforms will meet the demands of all investors, whether active or passive. Although their options charges are greater than those of other online brokers who specialize in trading stocks and options, having access to a wide range of financial products on a single platform may be worthwhile.

The user may personalize the thinkorswim® desktop program, which offers greater capability than the online and conventional mobile platforms. TD Ameritrade’s thinkorswim® mobile app, on the other hand, makes a good effort to replicate the powerful desktop version. thinkorswim® mobile includes watchlists, real-time data streaming, and charting and trading right from charts. Although it does not enable the ability to construct trend lines, charting on the mobile thinkorswim® app is much superior than the basic mobile app. As a result, thinkorswim® mobile will be the dominant mobile experience for options traders.

The mobile version, like the desktop version, enables users to trade multi-leg options. Traders may use TD Ameritrade’s order routing technology or they can route their orders to certain exchanges. Traders may also backtest trading methods and configure orders to execute automatically when particular conditions are fulfilled.

TD Ameritrade, like E*TRADE, is not primarily an options platform. It provides a broader range of services and includes extras such as strong customer service, industry-leading training materials, and tools that go beyond trade analysis to examine your whole financial status. Within that bigger world of options, thinkorswim® mobile stands out as a distinctive experience for options traders wishing to access markets on the move.

Interactive Brokers: Best Broker for Advanced Options Traders

  • Account Minimum: $0
  • Fees: Maximum $0.005per share for Pro platform or 1% of trade value, $0 for IBKR Lite
  What Is Financial Capital?

Why We Chose It

Because of its cheap options fees, continual improvements to its already excellent trading and analytical tools, and long-standing dedication to rapid order execution, Interactive Brokers (IBKR) earns the top place as the Best Broker for Advanced Options Traders this year.

Pros
  • Superb options screeners and probability calculators

  • Superior order execution and order routing controls

  • Widest range of trading vehicles and market locations

  • Low margin rates

  • Available paper trading

Cons
  • Advanced platform features can intimidate new users

  • Order routing not available to all clients

  • No backtesting of custom algorithms

Overview

This year’s Best Broker for Advanced Options Traders award goes to Interactive Brokers, who replaces last year’s winner, tastyworks. This is due to a mix of tastyworks’ continued lack of streaming news and basic research and IBKR’s attempts to establish a best-in-class platform.

T.P. & Co. was created in 1978 by the company’s current Chairman, Thomas Peterffy. When Interactive Brokers Inc. was formed as a US broker-dealer in 1993, the business built the first portable computers used for trading markets and started marketing its services to the public. Since then, IBKR has emerged as the obvious option for skilled traders due to their ability to provide almost every security type in most marketplaces on a single platform.

IBKR debuted IMPACT, a trading program that matches investor values with their investments, and Global Analyst, an online tool that assists investors in locating undervalued firms, in 2021. In addition, the firm has created several unique tools to better evaluate and automate the trading process, and it offers options trading internationally in over 30 market centers.

For aggressive traders, Interactive Brokers offers affordable options commissions ranging from $0.15 to $0.65. However, the charge for users trading fewer than 10,000 contracts per month is $0.65 per contract, putting IBKR on the pricey side for lesser volume options traders. There are break thresholds for trading bigger volumes per month that vary with the premium, but you must trade more than 100,000 contracts per month to reach the $0.15 per contract cost. Interactive Brokers also boasts excellent execution, enabling its major clients to route their own orders while still offering commission-free trading (except options) and paying for order flow to consumers.

Interactive Brokers has created some outstanding options analysis tools, which are also accessible on the mobile app. These tools include options spread templates that allow you to simply evaluate comparable strategies in order to pick the one with the greatest risk/return profile. IBKR Mobile also includes one-tap options strategies, which enable the trader to quickly make modifications to different legs of the strategy while also displaying important options Greeks on the quotation page and enabling fine-tuning of strategies via filter adjustments. In addition to futures options spreads, Interactive Brokers enables traders to exercise all or some options and offers useful indications to assist traders assess if an early option exercise would be advantageous.

In addition to these capabilities, Interactive Brokers offers traders tools for graphing prospective payments on options strategies, as well as tools for estimating the likelihood of an option turning lucrative. Other options-specific features at Interactive Brokers include a write option tool that analyzes your stock holdings and estimates the quantity of covered options to write against the uncovered stock, as well as rollover tools for expiring options. Options analytics also enable traders to change option pricing data such as price, time, and implied volatility. Finally, Interactive Brokers’ Options Portfolio continually and effectively examines market data to discover low-cost option strategies consistent with the user’s goals. It’s a lot for even seasoned traders to take in, but it’s a pleasant sight for sophisticated traders seeking for the whole toolkit.

E*TRADE: Best for Beginning Options Traders

  • Account Minimum: $0
  • Fees: No commission for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume.

Why We Chose It

E*TRADE was chosen as the best options broker for beginners because to its superb investor education resources, very user-friendly platform design, and exceptional customer support.

Cons
  • Higher commissions for options trading

  • Higher fees for less frequent traders

  • International trade, forex, or cryptocurrency are not supported.

Overview

We chose E*TRADE as our Best Broker for Beginning Options Traders because, despite charging higher fees than other online brokers specializing in options trading, E*TRADE has powerful desktop, web, and mobile platforms that are also simple to use and meet the needs of both novice and experienced investors and traders. E*TRADE, one of the earliest internet brokers, was founded in the early 1980s and was acquired by Morgan Stanley in 2020.

To assist novice options traders in learning, E*TRADE provides outstanding tools and analytics, as well as a large choice of training resources on options and other investment topics. Another significant advantage of E*TRADE for inexperienced options traders is the ability to paper trade, which allows users to experiment and test different options strategies before committing their actual money to the market.

Because E*Deal charges costs on both sides of the trade, with no maximum fee, there is a differential in fees that gets more apparent as trading volumes grow. A vertical spread deal for 10 contracts would cost $20 for an active E*TRADE trader, but $14 on tastyworks. When trading volumes grow, the discrepancies become apparent, as a 100 contact spread deal at E*TRADE would result in a $200 charge but just $60 on tastyworks.

Of course, E*TRADE is more than simply options, and it competes with many of the larger full-service brokerages across a broader range of asset classes. In addition to options trading, E*TRADE offers its users streaming quotes, news, fundamental stock analysis, and numerous screeners for stocks, ETFs, mutual funds, and fixed income. While E*TRADE may be at a cost disadvantage for high-volume, high-frequency options traders, it offers a full solution for investors with a typical portfolio of stocks, ETFs, and bonds who want to diversify into options trading for the first time.

Webull: Best Broker for Low-Cost Options Trading

  • Account Minimum: $0
  • Fees: $0 commission to trade stocks, listed options, and ETFs

Why We Chose It

Webull is our pick for Best Broker for Low-Costs Options Trading since it charges no (direct) fees to its consumers while still offering powerful trading and analysis tools.

Pros
  • No cost stock, ETF, and options trading

  • Strong desktop and mobile platforms

  • Access to pre and extended hours trading

  • Free real-time streaming quotes, news, and fundamentals

  • Above average research capabilities

Cons
  • Limited to stock, ETF, options, and cryptocurrency trading

  • Less robust options analysis tools than larger competitors

  • Weak portfolio analysis tools

  • Poor price execution may occur from payment for order flow (PFOF).

  • No interest earned on uninvested cash

Overview

Webull was founded in 2017 and launched its mobile brokerage platform in 2018. Its mobile-first approach mirrors the company’s target demographic, which is youthful, technologically savvy, needs information on the move, and is comprised of active, self-directed traders. Webull now offers Cboe products, including S&P options (SPX), Cboe Volatility Index (VIX), and Mini-S&P 500 Index options. Webull’s platforms will include fractional share trading in 2021 and commission-free over-the-counter (OTC) stock in 2022.

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Webull has a specific emphasis, providing consumers with access to just stocks, ETFs, options, and cryptocurrencies. While Webull does not charge users commissions or fees for these assets, they do give some good tools and services, such as live quotes, news, and technical and fundamental analysis. Webull also produces market calendars and gives a breakdown of ratings from numerous analyst ratings via the use of extremely clear and simple visuals. Mutual funds and fixed income trading are not available on the platform.

The desktop and mobile platforms of Webull are simple to use. Webull provides a stock screener with many filter settings, and a customized screen may be stored and converted into a watchlist. Webull has recently improved its already impressive charting skills, and it now offers tools to assist in the construction of the most typical one, two, and four-leg options strategies, such as vertical and calendar spreads, straddles/strangles, and butterflies/condors. The portal also provides capabilities to further tailor the option strategy by adjusting strike prices and maturities, as well as a payment graph at maturity for the strategy.

Webull is transparent in that they collect money for order flow to make income since there are no commissions or fees levied to the consumer. Webull also makes income on client cash balances since they do not give interest on idle cash. Webull just launched options trading capabilities as part of its paper trading platform, to go along with its existing stocks and ETF simulators, however the capability is presently confined to single-leg option strategies. This implies that instead of making a single order for a spread, which 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.

Considering many brokers still charge fees on both opening and closing options positions, the difference in costs will add up, especially for very active, high-volume traders. This makes Webull an online broker worth considering, especially for higher volume traders.

Final Verdict

As the significant increase in retail options trading has forced online brokers to compete even harder for customer business, it has spurred the development of some fantastic product innovations, deeper pricing cuts, and easier pathways to creating sophisticated options strategies. While tastyworks has some work to do to regain the rank it lost in our redesigned methodology, which gives the highest weighting to research amenities, its competitive commissions, options-focused content, and optimized options tools are strong enough to keep it sitting at our best overall pick.

Webull’s free option trading coupled with a solid platform is also worth looking at for options traders who understand the market and don’t require as much education and trading support. E*TRADE impressed us with its enhancements this year, making the ongoing competition between it and TD Ameritrade in the areas of best mobile and best beginner platforms even tighter. Finally, in the eyes of sophisticated traders that understand options trading and trade the larger positions needed to create favorable commissions, the edge offered by Interactive Brokers is about as good as it gets.

What Are Options?

An options contract gives the holder the right—but not the obligation—to buy or sell the underlying asset at a set “strike” price on or before a certain “expiration” date. The purchase price of the option is called the premium. A call option gives the owner the right to buy a stock at a set price and by a certain time, while a put option gives the owner the right to sell a stock at a set price by a certain time. Options, which can be used to hedge or speculate, are called derivatives because their value is derived by the price movement of the underlying stock or ETF. Since stocks and ETFs usually have multiple call and put option contracts spanning different expiration dates and strike prices, different combinations of options can be used to create specific strategies for expectations of price movement or stability while controlling risk.

The basic options for price expectations are:

● If you expect the stock price to rise: buy a call option or sell a put option

● If you expect the stock price to fall: buy a put option or sell a call option

●If you expect the stock price to remain stable: sell a call option and/or sell a put option with the strike price near the current price for either or both options

Do Options Entail Leverage?

One important feature of options to understand is that the risk for the buyer of a put or call option is limited to the amount of premium they pay for the option, while the seller of the option would have theoretically unlimited risk on a call (because the price can keep going up indefinitely) (because the price can keep going up indefinitely).For the seller of puts, the option has risk limited to the stock price going to zero. Therefore, sellers of options, unless hedged, are usually exposed to significantly higher risk than the premium they received for the options.

Another essential aspect of options is the power they provide. A contract for 100 shares of the underlying stock is represented by an exchange traded option contract on a listed stock or ETF. Because the contract is for 100 shares, the out-of-pocket expense for a stock option is 100 times the current market price. Purchasing an option enables a trader to control 100 shares of stock for a little percentage of the underlying value of the stock. For example, if a stock is now priced at $100, purchasing 100 shares would cost $10,000 ($100 x 100 shares). However, an option to control a big number of shares may simply cost a few dollars each contract. A $5 call option costs $500 (100 shares x $5 option premium) to control 100 shares of stock valued $10,000. As a result, utilizing options to speculate provides a lot of power.

Can You Provide an Example of Another Product That Acts Like an Option?

Homeowners insurance is an example that may assist illustrate the notion of a put option. The homeowner pays a little premium in relation to the value of their property to safeguard against the house’s value declining owing to an insurable incident (such as a fire that destroys the house and renders it worthless).If nothing occurs to the home before the policy expires, you just lose your premium, but the premium provided you with protection against harm from an insurable incident. The insurance company is the put option’s seller; they retain the premium paid by the homeowner but risk paying a substantially larger amount if a big insurable event occurs. With homes insurance, the option expires one year after renewal; after that, you must pay the price for another year of coverage (essentially, to buy another put with an expiration date in one-year).While not a perfect example in comparison to the standardized contracts of exchange traded options, it demonstrates the concept of risk being restricted for the buyer of an option and possibly enormous losses for the seller of an option.

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How Do You Start Trading Options?

Investors must create an account with a brokerage company that allows options trading, and those who already have accounts with brokers that support options must get permission from the broker to trade options. After giving information about your investment aims, trading experience, and financial status, your application will be granted or refused (e.g., annual income, employment info, net worth, and total net worth).If you’re accepted, your broker will tell you the options level you’re allowed to trade; this defines the sorts of options techniques you may employ. You may also need clearance for margin privileges, depending on your broker and options strategy.

Once you’ve been accepted for options trading, the next step is to decide whether you want to use options to hedge or speculate, and then to figure out which options methods are ideal for you. This is best performed by employing a “option chain” or “matrix” that includes all of the expirations and strike prices for a stock to assist the trader in selecting the optimal option based on market expectations. Expiration dates may vary from days to months to years, depending on the underlying stock’s liquidity. Because options are a decaying asset with an expiry date, the shorter the term for an option, the riskier the option.

What Options Strategies are Commonly Used by People With a Long Stock Position?

Using options against a current stock or ETF position is a popular option technique used by investors, and it may be done in two ways. One is a strategy for increasing income that involves selling “covered” calls against a stock or ETF holding; the option is said to be covered because the worst that can happen to the option seller is that the stock you own is used to make delivery on the exercised call option you sold, limiting your upside on your stock holding. The seller of the covered call option maintains their shares and the premium they sold the covered call option for if the option is not exercised.

Another typical option technique against a stock holding is to purchase puts against the stock or ETF holding. If a stock owner, for example, wishes to retain a long-term stock position but believes the price will fall in the near term, they may buy a put on the stock. As a result, if the stock falls in value, the put option will increase in value, hedging the losses on the real stock ownership. The option expires worthless if the stock price remains above the strike price, but the position is protected if the stock price falls.

Remember the risk connected with acquiring or selling the option to ensure you have the appropriate exposure to price movements.

How Much Money Do You Need to Trade Options?

The minimum investment amount for options trading is determined by the kind of options you are permitted to trade and the broker’s requirements. In typically, the minimum necessary investment for level 1 (entry-level) options trading is $1,000, however the minimum deposit for level 2 or level 3 options trading may be at least $10,000. Even though the needed minimum is minimal, it’s usually a good idea to start trading options with at least $5,000 to $10,000.

What Should You Consider When Choosing an Options Trading Platform?

While pricing is one element to consider when selecting an options broker and trading platform, there are others to consider. If you are a beginning trader, it will be beneficial to have a broker that provides extensive instructional resources, such as articles, videos, and webinars. Intermediate and experienced traders will require a stable trading platform as well as a comprehensive set of options-specific trading tools and materials.

Options trade commission structures are often more intricate than stock trade commission structures. Until the industry-wide commission cutbacks in the autumn of 2019, most brokers charged a fee for each leg of an options spread in addition to a per-contract commission. Per-leg costs, which made 2- and 4-legged spreads costly, have mostly been removed throughout the industry. Some brokers are now putting limitations on charges paid for certain trading circumstances.

Portfolio margining is also available to investors with quite big portfolios at certain brokers. This is a method that evaluates the entire risk in a portfolio that includes equities and derivatives. Portfolio margining may be used by investors with big portfolios to lower the amount of the margin loan.

What Kind of Options Trader Are You?

The first and most crucial factor to consider when choosing an options trading account is your trading style. What is your trading style and level of risk tolerance? Which techniques do you intend to use? Do you wish to speculate, hedge, or use income methods against a stock or ETF holding?

Most options are reasonably priced in general, thus the option you choose to speculate with is a personal decision. Some traders choose to engage in options methods that have a high possibility of earning a modest amount of money, whilst others want to be correct less often but for higher sums.

For individuals who are just starting started with options trading, the level of instruction provided by your broker may be quite beneficial. Frequent traders and those who trade a big number of contracts will be more sensitive to commissions and fees, so review and understand your potential broker’s rates.

Methodology

Investopedia is committed to delivering honest, detailed evaluations and ratings of online brokers to investors. We updated the assessment process this year by conducting a large poll of clients who are actively searching to begin trading and investing with an online broker. We then used this essential information in conjunction with our subject matter experience to create the basis for a quantitative ratings model, which is at the heart of how we built our ranking of the top online brokers and trading platform businesses.

This model prioritizes essential variables such as trading technology, offering variety, mobile app usability, research amenities, instructional material, portfolio analysis features, customer assistance, prices, account amenities, and overall trading experience. Based on data acquired during rigorous investigation for each of the 25 organizations we analyzed, our team of researchers amassed 2425 data points and weighted 66 factors.

Many of the brokers we looked at also provided us with live demonstrations of their platforms and services, either in their New York City offices or through video conferencing. For majority of the platforms we assessed, live brokerage accounts were acquired, which our team of specialist writers and editors utilized to do hands-on testing in order to contribute their qualitative perspective.

Read our full Methodology for reviewing online brokers.

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