Options trade executions include a discussion of the levels of trading approval needed to use various options strategies. You will recall that these defined levels will vary slightly from one brokerage to another. Here is a chart reviewing a sample of these trading levels:
In this article, I will review the commission structure of some of the more prominent brokerages that offer options trading platforms and services.
Covered call writing as well as put-selling are short-term strategies that require frequent trading. This is the antithesis of a buy-and-hold strategy. Therefore, commission costs will play a major role in our annualized returns much like expense ratios significantly impact the returns we realize from mutual funds. For this reason, we cannot consider using full-service brokers to execute the sales of our covered calls or cash-secured puts. They simply cost too much. So we turn to online discount brokers who allow us to execute our trades online at reduced commissions, absent the investment advice and other services full-service brokers offer.
Most of the major brokerages are reliable, ethical and efficient as it relates to the execution of our trades. They also offer phone support if we experience any problems with the trading platform. They just won’t offer advice unless we are willing to pay for it. Don’t pay for it. You don’t need it. Education is power and will lead to the confidence we need in order to trade like an expert.
When doing our due-diligence as to which online discount broker to select we should factor in an evaluation of the quality of the research platforms, minimum cash deposits, and interest earned on deposited cash. But most importantly we should look at the commissions, the fees we pay to have our broker execute our trades. This is especially important to us due to the number of trades option sellers execute.
The major distinguishing factor between discount brokerages is the cost, or commission, charged to execute trades. As the competition has heated up over the years between these firms, commission rates have fallen precipitously, with some predicting commissions will eventually approach zero! Today (late-2014) the rates are low, but not quite zero. The chart below lists 11 of the top brokerages and the commissions charged by each to enter an options position and for assignment (our shares being sold or shares being “put” to us). Web links for each of these firms have also been provided so that you can conduct further research to find the brokerage firm that best meets your needs:
***PLEASE NOTE THAT THIS CHART IS NOT ALL-INCLUSIVE OF EVERY BROKERAGE TO BE CONSIDERED BUT RATHER A QUALITY LIST OF MANY OF THE MOST WELL-REGARDED ONLINE DISCOUNT BROKERS…THERE ARE OTHERS.
A few pennies or a couple of dollars may not seem like a big issue for a single trade but multiply those stats by the number of trades executed in a month, a year and an investment lifetime and all of a sudden we have a significant cash amount that is better off in our pockets than the brokers. The world of online discount brokers is highly competitive and they are all vying for our business so it behooves us to do our due-diligence and keep as much of our hard-earned money as possible.
Stock Scouter update
The MSN Money (Microsoft) website has been re-launched and the StockScouter tool is no longer published on the MSN site. The BCI team is taking a dual approach to address this issue. Specifically, we are in the process of exploring other options to StockScouter as well as staying in close communication with Verus Analytics…the supplier of the StockScouter data to MSN. They tell us that StockScouter will be available on other websites as soon as they complete their final contract negotiations with Microsoft.
As soon as we have either a replacement screen or we learn where StockScouter will be published, we will get that information to our subscribers immediately. We are currently working with other sites searching for alternatives. If we need to use another tool, we will need time to back test the effectiveness of the replacement tool. Either way, we will be in contact with our subscribers on this issue.
Upcoming live seminars (click on city for more information)
Monday, October 27th
Saturday, November 8th
Friday, November 21st
As this site projected, a preponderance of positive earnings surprises along with continued news of economic expansion has dramatically turned the market around this past week. Fears of a pending Ebola epidemic has been somewhat allayed and perhaps also a numbing to the global conflicts as well. Who knows what’s around the corner to “spook” the stock market but our economy and its corporations are doing just fine:
- The Conference Board’s Index of Leading Economic Indicators (A composite index of ten economic indicators that typically lead overall economic activity. The index includes indicators such as housing permits, new orders for consumer goods, consumer expectations, and performance of the S&P 500 Index) was up by 0.8% in September t0 104.4, the 12th increase in the past 14 months and above consensus expectations
- The Consumer Price Index (CPI- a widely followed indicator of inflation. The CPI is a measure of the average change over time in the prices paid by urban consumers for a fixed market basket of consumer goods and services) rose by 0.1% in September and by 1.7% in the past 12 months according to the Labor Department. Inflation remains below the Fed’s 2% target
- Existing home sales rose by 2.4% in September to an annualized 5.17 million above the 5.1 million projected by analysts. This is the strongest pace in 2014
- The median price of existing homes came in at $209,700, up 5.6% from a year ago and the 31st consecutive month of year-over-year gains
For the week, the S&P 500 was up by by 4.1%, for a year-to-date return of 8%, including dividends.
IBD: Confirmed uptrend
GMI: 3/6- sell signal since market close on September 26th.
BCI: Moderately bullish splitting the number of in-the-money and out-of-the-money strikes equally.
Wishing you the best in investing,
Alan ([email protected])