Options trading has more options and chances to capitalize on changing market circumstances than just stock trading.
If you opt for options, you can choose your risk before entering a trade and manage a larger position size with less money.
By trading options you can do the following:
- Add flexibility to your trading
- Control more stock with less money
- Generate income or hedge your portfolio
But which options trading platforms are best?
Best Options Trading Platforms 2022
Here are our top picks:
- Best for powerful trading tools: TradeStation (Our Pick)
- Best for research tools: TD Ameritrade
- Best for rewards for trading: Gatsby
- Best for no contract fees: Robinhood
- Best for no commissions: Webull
1. Best for powerful trading tools: TradeStation
TradeStation is a leading online broker that provides a robust options trading environment for active, experienced traders looking for on-the-go flexibility.
You'll only pay $0.50 per contract for options when you trade at TradeStation, which is the lowest cost per share of any full-service broker in the industry.
TradeStation also supports stocks, ETF, index options, mutual funds and even crypto trading (like BTC, ETH, LTC, and BCH).
You'll have access to advanced trading tools that let you react quickly when the market moves in a different direction than expected which is how you'll succeed at options trading with TradeStation.
Plus, TradeStation keeps your money safe with high-level encryption protocols and FDIC insurance for your funds.
2. Best for research tools: TD Ameritrade
TD Ameritrade has the best options trading research available, hands down.
Every day you'll have access to top-notch analytics so you can find high-quality investments at good prices.
There are also articles, videos and daily market commentary that will help you learn how to trade better so your chances of success increase over time.
TD Ameritrade has a $0.65-per-contract fee for options, which is the second-lowest rate you'll find anywhere for a full-service platform.
3. Best for rewards for trading: Gatsby
Gatsby options trading has no up-front fees when you open an account, and they will even pay you to trade.
Here you can trade stocks and options commission-free on publicly trade companies or ETFs, and earn Gatsby Rewards Points on each eligible trade.
You can also trade with your friends with the Gatsby Social Feed, earn Gatsby Rewards Points with each eligible trade, and follow real-time market data to get alerts on important breaking financial news relevant to your portfolio.
Gatsby removes the commissions, contract fees, and jargon to make trading stocks and options on public companies or ETFs accessible to everyone (see Fee Schedule at trygatsby.com/legal).
Get started investing now with just $10.
4. Best for no contract fees: Robinhood
Robinhood offers free stock and options trading so you get to keep more of your investment returns.
You can trade individual stocks, ETFs, options, and cryptocurrencies on the Robinhood platform.
Robinhood does not charge commissions to buy or sell stock (same-day access) and offers an instant deposit of up to $1,000 when you open an account so you can start trading options right away.
Robinhood has no inactivity fees, short selling fees, or margin interest rates. Plus, it's one of the few options trading platforms that offer a free stock upon signing up.
5. Best for no commissions: Webull
Webull is a commission-free options trading platform that lets you invest in stocks, ETFs, and even cryptocurrencies on one easy interface.
It is one of the most popular Robinhood alternatives since it also is completely free to use.
Webull does not charge commissions for anything and allows you to reinvest dividends, deposit funds quicker than most brokerages.
Other Platforms to Consider
- E*TRADE – $0.00 minimum deposit and $0.65 per contract
- Charles Schwab – $0.00 minimum deposit and $0.65 per contract
- Interactive Brokers – $0.00 minimum deposit and $0.65 per contract
Want to make money trading options? Here is how to trade options for income and start earning passive income in the stock market.
Options Trading for Beginners
Options make it possible to have a stake in an underlying asset, without directly owning the asset yourself. Options are a major component of the derivatives market, meaning that the value of any given option will be directly affected by the value of the underlying asset (such as a stock, bond, or other speculative assets).
An option is a formal contract that allows you to buy (call options) or sell (put options) the underlying asset at a specific price at a specific date in the future. Options can be used to protect yourself from the risk of a given position and diversify your holdings as a trader.
In addition to these possible benefits, there are quite a few reasons why the options market is appealing. Usually, the options market will be more volatile than the underlying securities market, allowing traders to maximize the possibility of earning strong returns on their investments.
Though options are often used as a risk management tool, the options market itself should not be considered “risk-free.”
Suppose you are holding a call option giving you the right to buy a stock at $100. If, when the expiration date arrives, the market price is $90, the option will be worthless.
Next, we will discuss how you can use options to protect yourself from risk, while still carefully protecting your potential for strong returns.
How to Trade Options?
Nowadays, it's so easy to trade options without spending hours learning how to master it. This is possible through apps like Gatsby.
Gatsby makes options trading simple by removing the commissions and the jargon.
The app is built for those who doesn’t know very much about options trading but still wants to try it out. Overall, it's very user friendly and a well-built app.
You can trade options with your friends, earn Gatsby Rewards points on every trade you do, track breaking news and important alerts, and never pay any commissions or contract fees (free).
What You Need To Know To Start Trading Options on These Platforms
If you're like me, you'll want to learn about how options work and get your feet dirty. Here's what you need to know to get started trading options.
Options are derivatives contracts
Options contracts are derivatives contracts, meaning that their value is derived from some other asset. Futures contracts are also derivative contracts, though these contracts impose an obligation to buy once the expiration date arrives. At its face, it is impossible to determine whether a $100 call option is worth nothing, $10, $10,000, or any other value. In order to determine how much this contract is worth, you must know the value of the underlying asset.
The most valuable options contracts are “in the money” contracts, meaning that the strike price is positioned favorably against the spot price. While out of the money contracts have no use on the expiration date, traders still purchase these contracts, hoping that conditions might change.
Options cost less than the underlying asset
Because options merely give you the right to buy or sell—rather than the financial capacity to do so—option contracts will always cost less than the underlying asset. This makes it possible for traders to have access to major companies that might otherwise be out of reach.
As of June 2019, Berkshire Hathaway (BRK.A) stock is trading for more than $300,000 per class A shares. As one of the most expensive stocks on the market, this value is inaccessible to most traders. However, depending on the desired strike price, Berkshire Hathaway options can be purchased for $100 or even less.
Options are most volatile right before the expiration date
Depending on your trading strategy, volatility can either be a good or bad thing. For risk-averse traders, volatility (extreme price movements) is something that will need to be avoided. For profit-seeking day traders, however, volatility means more opportunities for profits.
Many options contracts are issued years in advance, making it difficult to determine what they will be worth in the future. As the expiration date approaches, it becomes clearer whether these contracts will be in the money, out of the money, or at the money. If the price of the underlying asset has experienced major changes over time, the demand for options will either increase or decrease accordingly.
Call options and put options are not mutually exclusive commitments
The question, “is it better to purchase call options or put options?” is not a question that can be easily answered. The answer will depend entirely on your trading strategy, as well as the contracts you are considering purchasing.
The best options trading strategies will often require purchasing call options and put options simultaneously. Head and shoulders options strategies, for example, are ideal for traders who believe the underlying asset will experience a major price swing but are unsure which direction it will go. Many of these trading strategies will also pair options with a long position in the underlying asset.
Consider purchasing multiple call options at once
In addition to developing an options portfolio that has both call and put options, you may also want to consider purchasing call options at multiple different levels. Even if you are unsure where prices will move in the distant future, you can use these strategies to control the amount of money you could possibly stand to lose.
A common options trading strategy—sometimes called “triples”—involves purchasing three call options at once. One will be in the money, one will be at the money, and the third call option will be out of the money. If the market price for the underlying asset is currently $100, a trader might purchase a $90 option, $100 option, and $100 option, respectively. Another way to diversify your options holding is to purchase contracts with varying expiration dates.
Use options to control your exposure to risk
Options are speculative derivatives, but they also function as excellent risk management tools. It is not uncommon for options traders to purchase a share of the underlying asset along with an option as a form of “insurance.” This way, no matter what the future has in store, at least one of their positions will be profitable.
At the same time, many traders will use options to “double down” on their current position. If a stock is selling for $100 and the call option is for anything less than $100, all movements beyond this price will enhance both positions. Whether you primarily use options to control risk or use them to enhance positions will be up to you.
Practice trading options on paper before risking actual money
Understanding the options market can still be rather complicated. Even if you have experience trading stocks, there are still many market-specific nuances that will need to be addressed.
In order to maximize your potential as a trader, it will be crucial to get some experience trading on paper in advance. Back-testing strategies—seeing which ones work and which ones fall flat—can help you be much more confident in your future positions. While paper trading, pay attention to the “option Greeks.” The delta, gamma, theta, and vega figures attached to each option make the market much easier to quantify.
The options market provides traders with opportunities to control their exposure to risk and to pursue long-term returns. By taking the time to understand this unique dimension of the trading world, you can improve your potential as a trader.
Or, you can get your feet wet with options by using Gatsby. The app's interface is great and can completely enhance your trading experience so you can start trading options today.