From 2020 to 2021, work-life norms were turned upside down as people around the world struggled to deal with unprecedented pandemic restrictions. As the new work from home trend gained traction and households were flooded with government assistance, a new generation of retail traders discovered the leverage that options offer. 2020 to 2021 was a time of record trading volumes in the options market, with retail traders accounting for 25% of the volume in 2021. In 2022, however, an unfamiliar regime of more restrictive monetary policies has turned the tide on all market participants, forcing many to discover that stocks often fall faster than they rise. In this review, we examine the best online brokers for trading options to help investors decide which platform offers the best mix of education, speed, costs, tools, research, and more to fit their needs.
Best Brokers for Options Trading:
tastyworks: Best Options Trading Platform
- Account Minimum: $0
- Fees: $0 stock trades, $1 to open options trades (capped at $10 per leg), $0 to close
Why We Chose It
We chose tastyworks as the Best Options Trading Platform because of their highly competitive options trading commissions, excellent options trading tools, and superb options-focused education and live video content.
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
Limited investment options
Focus on trading and options results in weak portfolio analytics
No news or fundamental analysis
Tastyworks, launched by tastytrade in 2017, was created by the same people that created and developed TD Ameritrade’s excellent thinkorswim® application. The founders were inspired to create a platform allowing self-directed retail traders to have access to markets and sophisticated analysis tools. Tastyworks is designed more for active investors/traders and only offers stocks, ETFs, options, and cryptocurrency trading.
Tastyworks has very competitive fees for trading options. While they charge $1.00 per contract to open each leg of an options trade, they cap fees at $10 per leg for any option trade, regardless of trade size. A $0.10 per contract for clearing fee is also charged. Unlike most brokers, tastyworks does not charge commission for closing positions. This results in tastyworks having very competitive fees for options trading, as many brokers charge on both the open and closing option, and do not put a cap on fees at all.
For example, opening and closing a 50 lot vertical call spread (total of 200 contracts traded to open and close the position) would cost just $40 at tastyworks—the maximum of $10 per leg for the two legs ($20), plus the $0.10 clearing fee for 200 contracts ($20). The same trade at E*TRADE, for example, would cost $100 using their $0.50 fee per contract for higher volume/frequency traders. The same vertical spread trade for 100 contracts would result in fees of $60 at tastyworks ($20 for the two legs and $40 in clearing fees) and $200 at E*TRADE. Tastyworks is competitive on price for all options traders, but it gets more competitive for high-volume, high-frequency traders.
Along with these low commissions, tastyworks does not skimp on options analytics, platform workflow, or trade input. Tastyworks’ strong options analytics includes the Greeks for specific multi-leg strategies, profitability graphs for options positions, and an easy order entry that automatically sets up the trade structure when specific options strategies, such as a vertical spread or butterfly, are chosen using an intuitive drop down menu. From there, it is easy to change the expiration dates and strike prices for a chosen options strategy. The platform also provides probabilities for the potential profitability of various options strategies.
Tastyworks’ desktop and mobile platforms are designed to closely resemble the look and feel of each other for consistency, although some things have to be tweaked to account for the smaller screen size of the mobile app. While tastyworks provides real time streaming quotes, it does not provide fundamental research or live streaming news. Tastyworks does offer a Follow Traders feature, which allows users to follow the trades of their in-house celebrities. Tasyworks’ customer service is well regarded by customers for having prompt and capable support, with Trustpilot showing a 4.4/excellent rating from more than 100 reviewers.
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 chose TD Ameritrade to win the Best Broker for Mobile Options Trader category primarily on the strength of the outstanding options analytics, research amenities, and trading tools delivered by its thinkorswim® mobile app.
Broad range of product offerings
Excellent educational materials
Solid options analytics on thinkorswim®
Near equality between the powerful desktop and mobile platforms
Higher than other brokers
No fractional shares trading
No automatic sweep of uninvested cash
Cryptocurrency trading limited to futures on Bitcoin
TD Ameritrade is the new winner in the Best Broker for Mobile Options Traders category this year, unseating last year’s winner, tastyworks. This has been a very tight race between the tastyworks and thinkorswim® platforms in recent years, but it was tastyworks’ lack of news and fundamental research that allowed TD Ameritrade to climb into the lead.
TD Ameritrade is a full service online broker well known for its excellent educational resources that provide customers with the basics of investing and beyond. The company was founded in 1975, and was purchased by Charles Schwab in 2019. TD Ameritrade also offers a broad range of asset classes, and the different platforms will satisfy the needs of all investors, whether active or passive traders. Although their options commissions are higher than some of the other online brokers more focused on trading stocks and options, having access to a full set of financial products on one platform may be worth it.
The thinkorswim® desktop application can be customized by the user, and generally has more functionality than the web and standard mobile platforms. That said, TD Ameritrade’s thinkorswim® mobile app makes a decent attempt at replicating its robust desktop version. thinkorswim® mobile has watchlists, streaming real-time data, and supports charting and trading directly from charts. It does not support the ability to draw trend lines, but charting is still much better on the mobile thinkorswim® app than on the standard mobile app. Consequently, options traders will be using thinkorswim® mobile as their primary mobile experience.
Being very similar to the desktop thinkorswim®, the mobile version allows users to trade multi-leg options. Traders can choose to rely on TD Ameritrade’s order routing technology or direct their orders to specific exchanges. Traders also have the ability to backtest trading strategies and set orders to trigger automatically when certain criteria are met.
As with E*TRADE, TD Ameritrade is not specifically an options platform. It has a larger universe of offerings and comes with extras that include robust customer service options, industry leading educational resources, and tools that go beyond trade analysis to assessing your overall financial situation. Within that larger universe of offerings, however, thinkorswim® mobile is a standout experience for options traders looking to access markets on the go.
Interactive Brokers: Best Broker for Advanced Options Traders
- Account Minimum: $0
- Fees: Maximum $0.005 per share for Pro platform or 1% of trade value, $0 for IBKR Lite
Why We Chose It
Interactive Brokers (IBKR) takes the top spot as the Best Broker for Advanced Options Traders this year because of its low options commissions, ongoing enhancements to its already superb trading and analytical tools, and its long-standing commitment to efficient order execution.
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
Advanced platform features can intimidate new users
Order routing not available to all clients
No backtesting of custom algorithms
Interactive Brokers is the new winner in the Best Broker for Advanced Options Traders category this year, taking over the reins from last year’s winner, tastyworks. This is due to a combination of tastyworks still not offering streaming news or fundamental research and IBKR simply continuing to progress in its efforts to build a best-in-class platform.
The company was founded in 1978 by its current Chairman, Thomas Peterffy, under the name T.P. & Co. The company created the first handheld computers used for trading markets, and began selling its services to the public in 1993 when Interactive Brokers Inc. was incorporated as a US broker-dealer. In that time, IBKR has become the clear choice for sophisticated traders because they make pretty much every security type in most markets available on a single platform.
In 2021, IBKR launched IMPACT, a trading application that aligns investor values with their investments, and Global Analyst, an online tool that helps investors find undervalued companies. The company has also developed many innovative tools to better analyze and automate the trading process, and it supports options trading globally in more than 30 market centers.
Interactive Brokers has low options commissions for active traders, ranging from $0.15 to $0.65. That said, $0.65 per contract is the commission for customers trading less than 10,000 contracts per month, so this puts IBKR on the high side for lower volume options traders. There are break points for trading larger volumes per month that also vary with the premium, but you’ll need to trade more than 100,000 contracts per month to hit the $0.15 per contract commission. Interactive Brokers also has superior execution, allowing its large clients to route their own orders while also providing customers commission free trading (not including options) that comes with payment for order flow.
Interactive Brokers has developed some excellent options analysis tools that are also available on the mobile application. These tools include options spread templates to easily compare similar strategies to find the one with the best risk/return profile. IBKR Mobile also has one-tap options strategies that allow the trader to easily make changes to various legs of the strategy, as well as showing key options Greeks on the quote page and allowing fine-tuning of strategies through the adjustment of filters. In addition to futures options spreads, Interactive Brokers also allows traders to exercise all or some options, and provides helpful indicators to help the trader determine if an early options exercise would be beneficial.
In addition to these tools, Interactive Brokers provides traders with tools to graph potential payouts on options strategies, as well as tools to estimate the probability of an option becoming profitable. Other tools specific to options at Interactive Brokers include a write option tool that scans your stock positions and calculates the number of covered options to write against the uncovered stock, and rollover tools for options about to expire. There are also options analytics that allow traders to manipulate options pricing data such as price, time, and implied volatility. Finally, Interactive Brokers’ Options Portfolio continuously and efficiently scans market data to identify low cost options strategies in line with the objectives of the user. It is, quite honestly, a lot for even experienced traders to take in, but it is a welcome sight for advanced traders looking for the full toolset.
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
We chose E*TRADE as the best options broker for beginners because of its excellent investor education tools, incredibly intuitive platform design, and top-notch customer service.
Higher commissions for options trading
Higher fees for less frequent traders
Does not support international trading, forex, or cryptocurrency
We chose E*TRADE as our Best Broker for Beginning Options Traders because, even though it charges higher fees than other online brokers focusing on the options trading space, E*TRADE has powerful desktop, web, and mobile platforms that are also easy to use and meet the needs of both beginner and expert investors and traders. E*TRADE was established in the early 1980s as one of the first online brokers and was purchased by Morgan Stanley in 2020.
E*TRADE has excellent tools and analytics, and a wide range of educational materials on options and other investing concepts to help new options traders learn. Another great benefit of E*TRADE to new options traders is the ability to paper trade, so users can practice and try various options strategies before committing their own capital in the market.
It is important to note that there is a difference in fees that becomes more stark as trading volumes increase because E*TRADE charges fees on both sides of the trade, with no maximum fee. A vertical spread trade for 10 contracts would cost $20 for an active E*TRADE trader, while on tastyworks the fees total $14. Once trading volumes increase, the differences become very apparent as a 100 contact spread trade would result in a commission of $200 at E*TRADE but only $60 on tastyworks.
E*TRADE is, of course, more than just options, and holds its own against many of the large full service brokerages across a wider set of asset classes. In addition to its options trading capabilities, E*TRADE provides customers with streaming quotes, news, fundamental stock research, and multiple screeners for stocks, ETFs, mutual funds, and fixed Income in addition to options. So, while E*TRADE may be at a cost disadvantage for high-volume, high-frequency options traders, it is a complete solution for investors who have a traditional portfolio of stocks, funds, and bonds, but are curious to expand 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 choice to win Best Broker for Low-Costs Options Trading category because it levies no (direct) costs on its users, while still providing very capable trading and analytical features.
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
Limited to stock, ETF, options, and cryptocurrency trading
Less robust options analysis tools than larger competitors
Weak portfolio analysis tools
Payment for order flow (PFOF) may result in poor price execution
No interest earned on uninvested cash
Webull started operating in 2017 and released its mobile brokerage platform in 2018. It’s mobile-first strategy reflects the company’s target market that skews young, embraces technology, wants information on the go, and are active, self-directed traders. Webull has added Cboe products to its platform, including S&P options (SPX), Cboe Volatility Index (VIX) options, and Mini-S&P 500 Index options. Webull added fractional share trading to its platforms in 2021 and commission-free over-the-counter (OTC) stock in 2022.
Webull has a narrow focus, offering customers access to just stocks, ETFs, options, and cryptocurrencies. While they don’t charge customers commissions/fees on these assets, Webull still provides some excellent tools and features, including streaming quotes, news, and both technical and fundamental analysis. Webull also publishes market calendars and provides a breakdown of ratings from multiple analyst ratings using very clear and easy to understand graphics. The platform does not offer trading in mutual funds or fixed income.
Webull’s desktop and mobile platforms are easy to use. Webull has a stock screener that has multiple filter options, and a customized screen can be saved and turned into a watchlist. Webull has made recent enhancements to already good charting capabilities, and also provides tools to help construct the most common one, two, and four-leg options strategies, such as vertical and calendar spreads, straddles/strangles, and butterflies/condors. The platform also allows the user to bring up a payout graph at maturity for the strategy, as well as tools to further customize the option strategy by changing strike prices and maturities.
Since there are no commissions or fees charged to the customer, Webull is transparent in that they accept payment for order flow to generate revenue. Webull also generates revenue on customer cash balances because they do not offer interest on idle cash. Webull recently added options trading capabilities as part of its paper trading platform, to go along with its existing stocks and ETF simulators, although the functionality is currently limited to single-leg option strategies. This means you would have to purchase each leg of an options strategy as individual single leg options, instead of entering a single order for a spread that can be done on the main, non-paper trading platform.
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.
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). 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 important concept with options is the leverage they afford. An exchange traded option contract on a listed stock or ETF represents a contract for 100 shares of the underlying stock. Therefore, the out of pocket cost for a stock option is 100 times the price it is trading at because the contract is for 100 shares. Buying an option allows a trader to have control of 100 shares of stock by only laying out a small portion of the underlying value of the stock. For example, if a stock is trading at $100, to purchase one hundred shares would cost $10,000 ($100 x 100 shares). But, an option may only cost a few dollars per contract to control a large number of shares. A call option trading at $5 would cost just $500 (100 shares x $5 option premium) to control 100 shares of stock worth $10,000. So, there is a good deal of leverage associated with using options to speculate.
Can You Provide an Example of Another Product That Acts Like an Option?
An example that might help explain the concept of a put option is homeowners insurance. The homeowner pays a small premium relative to the value of their home to protect against the value of the house going down due to an insurable event (such as a fire that destroys the house and renders it worthless). If nothing happens to the house through the policy’s expiration date you only lose your premium, but the premium provided you with a hedge against damage from an insurable event. The insurance company is the seller of the put option; they keep the premium paid by the homeowner, but have the risk of paying a significantly higher amount if there is a significant insurable event. With homeowners insurance, the expiration of the option is a year after the renewal; after that, you need to pay the premium for another year of coverage (essentially, to buy another put with an expiration date in one-year). While not a perfect example compared to the standardized contracts of exchange traded options, it illustrates the idea of the risk being limited for the buyer of an option, and potentially large losses to the seller of an option.
How Do You Start Trading Options?
Investors need to open an account with a brokerage firm that supports options trading, and those with existing accounts at brokers that support options will need the broker’s approval to trade options. Your application will be approved or denied after providing details about your investment objectives, trading experience, and financial situation (e.g., annual income, employment info, net worth, and total net worth). If approved, your broker will let you know which options level you’re approved to trade; this determines the types of options strategies you are permitted to use. Depending on your broker and options strategy, you may also need approval for margin privileges.
Once approved for options trading, the next step is determining if you want to use options to hedge or speculate, then to determine which options strategies are best for you. This is best accomplished by using an “option chain” or “matrix” that lists all the expirations and strike prices for a stock to help the trader choose the right option for their market expectations. Expiration dates can range from days to months to years depending on the liquidity of the underlying stock. Generally, the shorter the timeframe for an option, the riskier the option is because options are a decaying asset due to their having an expiration date.
What Options Strategies are Commonly Used by People With a Long Stock Position?
Using options against a current stock or ETF holding is a common options strategy utilized by investors, and can be done in two basic ways. One is a strategy to increase income by 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 using the stock you own to make delivery on the exercised call option you sold, which limits your upside on your stock holding. The upside is the option not being exercised, so the seller of the covered call keeps their stock and the premium they sold the covered call option for.
Another common option strategy against a stock holding is to hedge the stock or ETF holding by purchasing puts against their holding. If, for example, the owner of stock wants to keep a long term stock holding, but thinks the stock may move lower in the short term, they can purchase a put on the stock. This way, if the stock moves lower, the put option will go up in value to hedge the losses to the actual stock holding. The downside is that the option expires worthless if the stock price stays above the strike price, but the position was protected if the stock moved lower.
Again, remember the risk associated with purchasing the option or selling it to ensure you have the right exposure to price changes.
How Much Money Do You Need to Trade Options?
The type of options you are approved to trade, and the broker’s policies will help determine the minimum investment amount required for options trading. In general, $1,000 is the minimum required deposit for level 1 (entry-level) options trading, but the minimum deposit can be at least $10,000 for level 2 or level 3 options trading. Even if the required minimum is low, it’s always a good idea to have at least $5,000 to $10,000 to start trading options.
What Should You Consider When Choosing an Options Trading Platform?
While costs are one consideration when choosing an options broker and trading platform, there are other factors to weigh. If you are a new trader, it will be helpful to have a broker that offers substantial educational offerings—such as articles, videos, and webinars. Intermediate and advanced traders will want a robust trading platform and a full suite of options-specific trading tools and resources.
The commission structure for options trades tends to be more complicated than for stock trades. Until the commission cuts that swept the industry in the fall of 2019, most brokers charged a fee for each leg of an options spread plus a per-contract commission. The per-leg fees, which made 2- and 4-legged spreads expensive, have for the most part been eliminated industry-wide. We are also seeing some brokers place caps on commissions charged for certain trading scenarios.
Investors with fairly large portfolios can also take advantage of portfolio margining at some brokers. This is a practice that assesses the total risk inherent in a portfolio that contains stocks and derivatives. Investors with large portfolios can use portfolio margining to reduce the size of the margin loan.
What Kind of Options Trader Are You?
The first and most important piece of information to consider before selecting an options trading account is what kind of trader you are. What is your trading style and risk appetite? Which options strategies do you want to employ? Do you want to hedge or utilize income strategies against a stock or ETF holding, or to speculate.
Generally, the prices of most options are fairly priced, meaning the option you choose to speculate with is a personal choice. Some traders prefer to enter into options strategies with a high probability of making a small amount of money, while others prefer to be right less often but for larger amounts.
The quality of the education offered by your broker can be very helpful for those just getting started with options trading. Frequent traders and those who trade a large number of contracts will be more sensitive to commissions and fees, so check out your prospective broker’s charges and make sure you understand them.
Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of online brokers. This year, we revamped the review process by conducting an extensive survey of customers that are actively looking to start trading and investing with an online broker. We then combined this invaluable information with our subject matter expertise to develop the framework for a quantitative ratings model that is at the core of how we compiled our list of the best online broker and trading platform companies.
This model weighs key factors like trading technology, range of offerings, mobile app usability, research amenities, educational content, portfolio analysis features, customer support, costs, account amenities, and overall trading experience according to their importance. Our team of researchers gathered 2425 data points and weighted 66 criteria based on data collected during extensive research for each of the 25 companies we reviewed.
Many of the brokers we reviewed also gave us live demonstrations of their platforms and services, either at their New York City offices or via video conferencing methods. Live brokerage accounts were also obtained for most of the platforms we reviewed, which our team of expert writers and editors used to perform hands-on testing in order to lend their qualitative point of view.
Read our full Methodology for reviewing online brokers.