 | |
| Low Cost Options Broker | Options Trading Commissions |
|---|---|
| $0 per contract and $0 base |
Webull Options Trading Webull is one of the cheapest brokerage firms to trade options. Their pricing is impossible to beat: there is no base commission, no per-contract fees, and no assignment or exercise fees. Can’t get much better than that. This low pricing is a huge advantage for those clients who don’t want their profits eaten up by commissions. Another huge plus of Webull are low margin rates: from 5.74% for very large debits to 9.74% for balances under $25k. That’s between 2 and 4 points below most other brokers and this low rate allows you to use leverage to amplify returns more successfully.
It’s possible to add options trading using the mobile app. On the lower menu on the Webull app, tap on the center icon (the bull’s horns) and then tap on the icon with a circle and three dots inside (labeled as “More”). On the next page, tap on “Options Trading” under the “Account” menu. Just follow the instructions and you’ll be ready to trade within a day. Read full Webull options trading review » Webull Promotion Up to 75 FREE fractional shares when you make a deposit at Webull. Visit Webull Website | |
| Low Cost Options Broker | Options Trading Commissions |
|
| $0 per contract and $0 base |
Firstrade Options Trading Firstrade is the lowest priced online broker in the industry. Their options commission is $0 base charge and $0 per contract. There are three ways options can be traded on Firstrade’s user-friendly website. The first is to click on the “Trading” tab in the top menu and then select “Options” in the lower menu. Doing so creates an order ticket. There are no other tools on this page; so you really need to know what you’re doing before you try to fill out the order ticket. Fields that need to be completed include strike price, number of contracts, buy or sell to open or close, and call or put. On this page, there are links to chains and a helpful options expiration calendar. The next place derivative orders can be submitted is through the broker’s trade bar. It appears at the bottom of the screen. Clicking on the two blue arrows on the right side enlarges the trade bar so that the order form will be shown. On the left side, you’ll want to click on “Option” instead of “Stock.” Option chains can be expanded above the trade bar for an overview of current prices of contracts. Besides calls and puts, there are selections for spreads and straddles. Greek values are automatically calculated as well. Clicking on a hyperlinked bid or ask price automatically populates the order ticket below.
The third and final method of trading options on the website is with OptionsPlay. This is a very useful piece of software that offers derivative traders many great features. There are trade ideas presented on any entered company. Clicking on a green “I’m Bullish” button generates one set of trade ideas, while a red “I’m Bearish” button will produce a different set. Profit-loss diagrams are included. Clicking on one of these trade ideas produces an order ticket. During our research, we found OptionsPlay to be the best method of trading derivatives at Firstrade. To access the software, you need to click on “Options Wizard” within the chains window. Trading Options on the Mobile AppAlthough there is no desktop program or browser platform at Firstrade, the broker-dealer does have a mobile app where options can be bought and sold. On a stock’s profile page, there are two buttons at the bottom of the screen: “Trade Options” and “Trade Stock.” Tapping on the first choice generates a list of expiration dates. Tapping on a date generates calls and puts with bid and ask prices. Tapping on a bid or ask price creates a trade ticket with some data filled, but other data, such as order type, not filled. There are no multi-leg strategies on the mobile system. Firstrade Promotion Offer Get up to $250 in transfer fee rebate. Visit Firstrade Website | |
How to Trade Options Before Earnings or News Release
Like a sexy gal that can cook or an inside source at the racetrack, an actionable option strategy prior to an earnings release is something that traders know must be out there, yet it remains elusive. Most investors looking to capitalize on an earnings beat or miss simply buy calls or puts. Some of the more sophisticated speculators even get long both a call and a put (straddle/strangle), thinking that if the stock moves enough one way or the other, they'll come out at least a little bit ahead.
Limited Risk – High Reward
The allure of only being long calls and/or puts is that a trader knows their maximum risk as soon as they enter the order. If a call on Apple costs $100, then $100 is the most you can lose, plus you have the chance to "rake it in" if Apple moves significantly before the option expires.
Therein lies the trouble with most long-side option strategies prior to earnings announcements...since no one knows what the earnings report will hold, or how the underlying stock will react; the demand for options goes up markedly before the announcement. Both speculators and shareholders looking to insure against volatility are clamoring for options which dramatically increases the premiums, making puts and calls overpriced.
Being the Bookie
Everyone knows that taking bets is more profitable long-term than making bets. Especially if the wager has very favorable odds for the house. This is exactly what overpriced options are for the seller – a game that stacks the deck against the buyer. In general, immediately after earnings are released, the demand for - as well as the volatility premium built into - calls and puts, evaporates. Even those that theoretically have both upside and downside covered find it difficult to profit once that "premium of the unknown" is gone from their asset.
So the obvious solution would appear to be: become a seller of options. If only it were that easy! Unless you have the bottomless pockets of a Goldman Sachs, the unlimited risk part of being a naked option seller will be too much for you and your broker's heart to take.
Credit Spreads
In order to take advantage of the inflated premiums in the option market prior to an earnings announcement, yet mitigate the risk of selling uncovered (naked) puts/calls, the go to strategies are "bull put credit" and "bear call credit" spreads.
Rather than getting bogged down in the stock XYZ trading at $50 - type explanation, I'll leave it to a google search for those wanting the nuts and bolts of how to construct the option spreads mentioned above. The focus here is how to maximize the profit from these spreads and that is accomplished in the unwinding.
Unwound
Once the earnings report comes out and the market is digesting and reacting to the numbers, option prices revert to a more realistic reflection of future prospects. This allows the options trader to unwind his pre-earnings position and cash in on the uncertainty that was prevalent prior to the announcement. Does it work every time? No. Does it provide enough profit to get an address on easy street if it's all a trader does? No. But it works often enough and provides a boost to the bottom line to make it a worthwhile play to investigate further.
About the Author
Arthur Chachuna is a professional personal finance blogger, and the owner of Brokerage-Review.com. He has been an avid investor for 25 years, and has a background in both applied math and programming.
