Best online brokers for options August 2024
“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.
“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.
BLUEPRINT
Updated 2:52 p.m. UTC Aug. 6, 2024
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Depending on the type of option and strategy, you can achieve advantageous objectives. These include capital efficiency, leveraged long exposure, risk management, hedging, shorting and income. But options trading has a fair degree of complexity and risk.
To help you make the right choice, our team ranked the best online brokers for options trading. We assessed 18 firms based on their educational resources, features, fees, customer service, trading costs and more.
Robinhood
Best online brokers for options
- Webull: Best for overall options trading.
- eToro: Best for beginner options trades.
- E*Trade from Morgan Stanley: Best for trading platforms.
- Interactive Brokers: Best for investment offerings.
- Fidelity: Best for trading costs.
- Charles Schwab: Best for DIY traders.
- Robinhood: Best for mobile options trades.
- TradeStation: Best for active options trades.
- Merrill Edge: Best for Bank of America clients.
- Vanguard: Best for occasional options traders.
Why trust our investing experts
Our team of experts evaluates many investing products and analyzes various data points to help you find the best product for your situation. We use a data-driven methodology to determine each rating. Advertisers do not influence our editorial content. You can read more about our methodology below.
- 18 brokerages reviewed.
- 50+ data points analyzed.
- 3-step editorial review.
- 5-step fact-checking process.
Webull
eToro
E*Trade from Morgan Stanley
Interactive Brokers
Fidelity
Charles Schwab
TradeStation
Merrill Edge
Vanguard
Compare the best online brokers for options
| BROKER | COMMISSION-FREE OPTIONS TRADING | PER-CONTRACT OPTIONS FEE | ||||
|---|---|---|---|---|---|---|
 Webull | Yes | $0 | ||||
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 eToro | Yes | $0 | ||||
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 E*Trade from Morgan Stanley | Yes | $0.65 | ||||
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 Interactive Brokers | Yes | $0.65 | ||||
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 Fidelity | Yes | $0.65 | ||||
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 Charles Schwab | Yes | $0.65 | ||||
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| Robinhood | Yes | $0.00279 | ||||
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 TradeStation | Yes | $0.60 | ||||
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 Merrill Edge | Yes | $0.65 | ||||
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 Vanguard | Yes | $1.00 | ||||
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Methodology
Our team reviewed and researched some of the largest online brokers in the U.S. to rank the best for options.
We sent a digital survey with more than 50 queries to each company. Our researchers verified the survey data and confirmed any missing data points. They did so by contacting each company directly and via online research.
The brokers that made our list excelled across the following major categories: advisory services, education and research, insurance, features, trading costs, fees and account minimums, margin interest rate and interest on idle cash, and customer service.
Within each major category, we considered several subcategories. We combined them for an overall score, which we weighted to calculate an overall ranking of the brokers.
Data points were scored on a 0.00 to 1.00 scale. The top raw score was 0.75, curved to a five-star rating as the highest possible score.
Why other online brokers for options didn’t make the cut
The online brokers excluded from this ranking usually need to catch up in terms of value-added features. These may include paper trading simulators, trading idea generators and options strategy builders. Options trading is fairly complex. A wide selection of these tools can help you visualize your strategy’s risk and return and make more informed trades.
A “paper money” feature can help you test strategies before implementing them. Some firms also allow you to visualize trades, showing max loss, max gain and breakeven. This can be helpful for newbies.
Our ranking criteria also heavily weight low trading costs, especially options commissions and per-contract fees.
Excessive options commissions and fees per contract can eat into returns. That’s especially true for options traders churning a high volume. Firms that eliminated commissions and kept fees minimal received higher rankings.
Final verdict
Webull stands out as the best platform for options trading. It offers comprehensive charting tools, profit and loss calculators, and a variety of order types. These are designed to enhance trading strategies and decision making. Webull provides a diverse range of underlying stocks and ETFs on which to trade options. The absence of options commissions and fees per contract is also a big plus. It makes executing complex, multileg orders economically feasible.
What is options trading?
Options trading refers to the practice of buying and selling options contracts. An options contract represents the right to buy or sell an asset at an agreed-upon price for a specific period.
An option is a contract linked to an underlying asset, such as stocks and ETFs. Options are sometimes known as derivatives. That’s because the value of the contract is derived from the underlying asset.
An options contract generally doesn’t obligate you to buy the underlying asset — hence the name option. If you decide to purchase the asset, this is known as exercising the option. Selling an options contract obligates you to fulfill the contract.
Options trading lets you implement advanced trading strategies. They can help you protect your portfolio from future price declines or generate income from your portfolio. But losses can be significant. Options trading is usually reserved for experienced traders.
Choosing the best trading platform for options
You must carefully consider your goals and needs to find the best platform for options. Here are some factors to think about:
- Your trading needs. Some trading platforms are better for beginners, while others are more advanced. Consider your investment goals, such as whether you aim for growth or investment income.
- Platform features. Each trading platform has its own feature set. Some have abundant educational tools and analysis, while others focus on advanced trading tools and charts.
- Fees and commissions. While some trading platforms have reduced or eliminated various fees, they may still exist. It’s important to compare them, especially when trading often.
- Read reviews. Each trading platform might claim to be the best. But the reality may differ. Read reviews of each platform to learn about its strengths and weaknesses.
- Try before you buy. Many trading platforms offer free trials or demos. Use them to try each platform before you commit.
“Pricing for options trading has come down significantly in recent years, but if you’re paying higher per contract charges and not getting quality fills, you should be looking at different trading platforms.”
– Jason Steeno, president of CoreCap Investments and CoreCap Advisors
Trading options can be complex. So can finding the best trading platform for options. By carefully considering each platform’s features and your goals, you can find the one for you.
How to get started with trading options
Getting started with trading options is relatively straightforward. First, apply for a brokerage account in the usual way. You’ll likely provide information such as your name, address, Social Security number and employment details.
Your brokerage may require you to apply separately for options trading permissions. This often involves filling out an additional questionnaire to assess your experience.
Before you begin options trading, understand the mechanics, mainly the four “Greeks.” These are measures used to assess different risks in option pricing.
- Delta. Measures the rate of change in an option’s price per $1 move in the underlying asset.
- Gamma. Reflects the rate of change in delta.
- Theta. Indicates how much an option’s price decreases as the expiration date approaches.
- Vega. Shows the sensitivity of an option’s price to changes in the volatility of the underlying asset.
Once you’re comfortable with these concepts, starting with lower-risk options strategies is advisable. Brokers usually classify options strategies into the following risk levels:
- Level 1. This is the safest, involving strategies like covered calls and cash-secured puts. These are primarily used to generate income with a lower risk of loss.
- Level 2, 3, and 4. These levels involve more complex strategies, such as long puts and calls, options spreads, and naked contracts, respectively.
By starting with Level 1 strategies, you can build your experience and confidence in handling options. And you can do so while managing risk effectively. As you gain proficiency, you might consider applying for higher levels. Then you can explore more complex and potentially higher-reward strategies. A paper trading simulator is a risk-free way to learn.
Expert tips for trading options
Options trading can be complex. But the rewards can be great with the right strategy and approach. Here are some expert tips that can help you successfully trade options:
- Educate yourself. Before you start options trading, understand how it works. Learn about tactics like call options, strike prices and expiration dates. Don’t forget the Greeks!
- Know the dangers. The potential downsides of options trading can’t be overstated. You can lose your entire investment. Understand this before you start trading.
- Develop the right strategy. Your strategy should align with your risk tolerance, investment goals and market conditions. Common strategies include covered calls for income generation and protective puts to limit your downside risk.
- Manage risk. Because options trading can have significant risk, consider strategies to limit it. These include using stop-loss orders and investing only a small amount in each trade.
- Stay up to date. The market moves at a lightning pace. Keep current on factors like stock price movements and volatility, which can greatly impact your trading.
- Diversify. Diversifying your portfolio with several options trades can reduce risk. But remember that options trading is risky. It’s best to limit how much of your overall portfolio you allocate.
- Adjust as needed. Given how fast the market can change, you must be adaptable. You must be willing to change your strategy as the market moves.
Remember that there can be considerable risk when trading options. Be sure you fully understand before starting. Options trading isn’t for everyone.
Frequently asked questions (FAQs)
Options trading can incur several fees. Some brokerage platforms charge a commission for the trade.
Most brokerage platforms charge a fee per contract, typically around $0.65. Some also charge a fee when a contract is exercised or assigned. It can differ depending on the platform. Finally, exchanges may charge small regulatory fees. Be sure to read the fine print.
Most brokerages offer some sort of options trading. But the breadth and sophistication can vary.
Some beginner-friendly brokerages may offer only elementary options strategies and tools. More advanced brokerages may offer professional-grade data, strategy builders and analytics. Some brokers focus more on buy-and-hold strategies for stocks, ETFs and mutual funds. They may not offer options trading.
Like all forms of investment, options trading can carry significant risk. The Securities Investor Protection Corp. often insures brokerage accounts. This may also apply to options contracts.
But SIPC insurance generally doesn’t protect against a loss in the value of securities. In other words, you’ll generally have little recourse in a bad trade. This is why it’s important to manage risk when trading options. Only trade with money you can afford to lose.
Options trading can be highly profitable. But remember that greater reward generally comes with greater risk. Options trading is no exception.
To profit, you must develop a solid strategy, know the market and properly manage your risk. You should also learn from your experiences, both successes and failures. Use strategies like stop-loss orders to limit risk, as losses from options trading can be significant.
Options trading can have significant risks. Practice before you start trading is generally a good idea. Many trading platforms have paper trading, which lets you place hypothetical trades with fake money. Try paper trading before trading with real money. It can help you perfect your strategy.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.
