Brokers and commissions
I want to talk today about commissions.
Lets assume that you buy a straddle for $2 ($1 each option). I have an account with IB (Interactive Brokers) and pay 0.70 per contract. So for me to do a round trip trade is 2.80. This is 1.4% of the cost of the trade. So if my gain is 10%, then I keep 8.6% after commissions.
If you pay $1.5 per contract, then your total cost is $6. That's 3%. You need 3% gain just to break even.
Some brokers charge you per ticket fee plus per contract fee. This might be a good deal if you do a lot of contracts. For example, if you do 20 contracts and pay $5 per ticket plus 0.30 per contract, then you pay 0.55 per contract. But if you do just 2 contracts, then it's 2.80 per contract.
Also some brokers charge a fee per ticket per leg, others per ticket for the whole spread. For RIC which is 4 leg trade, it's a huge difference. Since you make it as one trade, you might pay one per ticket fee with some brokers or four fees with others.
Commissions is one of the reasons why I don't like cheap stocks. A straddle on a $100 stock might cost around $5.00-6.00. Paying $2.80 commissions is only 0.5% of the trade. But straddle on $15 stock can be only $0.70, so $2.80 is 4% of the trade. A huge difference.
When choosing a broker for those strategies, remember that commissions can make a huge difference. Check the fine print and do the math which broker is better for you based on the number of contracts you are going to trade. Update: For those who don't want to read the whole thread, it seems like most members really like IB. Barrons's agrees: Based on Barron's numerical calculations, Interactive Brokers (interactivebrokers.com) claims the No. 1 spot overall for the third-straight year. http://online.barrons.com/articles/SB50001424053111904628504579433251867361162
Lets assume that you buy a straddle for $2 ($1 each option). I have an account with IB (Interactive Brokers) and pay 0.70 per contract. So for me to do a round trip trade is 2.80. This is 1.4% of the cost of the trade. So if my gain is 10%, then I keep 8.6% after commissions.
If you pay $1.5 per contract, then your total cost is $6. That's 3%. You need 3% gain just to break even.
Some brokers charge you per ticket fee plus per contract fee. This might be a good deal if you do a lot of contracts. For example, if you do 20 contracts and pay $5 per ticket plus 0.30 per contract, then you pay 0.55 per contract. But if you do just 2 contracts, then it's 2.80 per contract.
Also some brokers charge a fee per ticket per leg, others per ticket for the whole spread. For RIC which is 4 leg trade, it's a huge difference. Since you make it as one trade, you might pay one per ticket fee with some brokers or four fees with others.
Commissions is one of the reasons why I don't like cheap stocks. A straddle on a $100 stock might cost around $5.00-6.00. Paying $2.80 commissions is only 0.5% of the trade. But straddle on $15 stock can be only $0.70, so $2.80 is 4% of the trade. A huge difference.
When choosing a broker for those strategies, remember that commissions can make a huge difference. Check the fine print and do the math which broker is better for you based on the number of contracts you are going to trade. Update: For those who don't want to read the whole thread, it seems like most members really like IB. Barrons's agrees: Based on Barron's numerical calculations, Interactive Brokers (interactivebrokers.com) claims the No. 1 spot overall for the third-straight year. http://online.barrons.com/articles/SB50001424053111904628504579433251867361162
Interesting. Robinhood just today announced that they will be offering free option trading next year.
http://blog.robinhood.com/news/2017/12/12/introducing-options-trading
-no commissions and no exercise/assignment fees (probably still passing down the other fees though, clearing, orf, etc)
-support for level 2 and level 3 option strategies (should work for the majority of SO trades)
-free real time data
They're also slowly releasing a web/desktop version of their platform so by the time options are available, the web/desktop version should be available as well. Not exactly clear what the entire user interface will look like at the moment though. (Probably can't be any more spartan than Tradier's web interface) I think Robinhood uses Apex clearing (which Tradier also uses) for stocks, which means they'll probably use them for options as well.
Anyways, could be something worth looking into when it's available.