Brokerage Comparison – Basic Options Trading Costs

In my first options post I detailed the cost of my first options trade: a $9.71 fee for an INTC covered call with a total premium of $26, netting me a $16.29 premium. Wow! Just over 37% of my entire premium eaten by trading costs! Naturally, once realizing that I would be doing some more options trading, my first thought was to evaluate what the overall effect of these trading costs would be depending on which broker one used. This simple brokerage comparison has the potential to save individuals thousands in trading fees.

Comparing a few discount brokers, I will examine a couple of trading scenarios involving only basic contract trading costs. Most brokerages only charge one transaction fee with multiple contract costs for more complicated option trading strategies. Below you will find the option trading costs for several of the main online discount brokers.

Trade Cost$8.95$4.95$9.99$7.00$9.95
Price per Contract$0.75$0.65$0.75$1.25$1.25

*ShareBuilder does not include discount for ShareBuilder Advantage Plan

Using the costs as outlined from the various brokers, I have presented a total cost of trading, without any exercising or assignment costs included, for various numbers of trades. Note that these are not for multiple contracts simultaneously, but separate individual contract trades.

 10 Trades20 Trades50 Trades100 Trades150 Trades
Scottrade$82.50$165.00$412.50$825.00 $1,237.50
Schwab$97.00$194.00$485.00$970.00 $1,455.00
E*TRADE$107.40$214.80$537.00 $1,074.00 $1,611.00
Sharebuilder$112.00$224.00$560.00 $1,120.00 $1,680.00

If, over the course of a year, you trade multiple times, regardless of the possibility of exercise and/or assignment costs, there are some very material dollar differences in the cost to an options trading method. These costs can really eat into your overall returns. Below I have shown the level of return eaten by the transaction costs depending on varying premium dollar amounts.

Average Premium, Single Contract$50.00$75.00$100.00$150.00$250.00
Percentage of Premium

It is clear that if you are going to employ any sort of semi-active trading or options strategy, real money will be saved by monitoring the cost side of your transactions. Looking at the charts above, someone using TradeKing to make 50 trades, will realize an additional $257 of income over someone using E*TRADE, or a 5.14% higher return presuming each trade averages $100 in premiums.

Who do you trade with and why? How have your trading costs affected your returns?

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  1. Thanks for putting this together! The fees can certainly add up as I found out last year.

    I should look into Trade King, I don’t know much about them. I currently use E*Trade for options and I agree they are expensive and that’s one reason I am trying to get higher premiums this year. I am still trying to negotiate fees with them lower. The only problem is the majority of my portfolio is at E*Trade so I would still have to sell covered calls there. i would save a lot from selling puts though.

    • writing2reality says:

      No problem AAI! They definitely can add up! By lowering your fees, it can really give you a broader range of options to invest in, by giving you the opportunity to see a bigger return. Use the $50 premiums as an example; big difference!

      As far as switching accounts, it isn’t difficult to do an asset transfer at all. Simply open the account, fill out the transfer form, and boom, all your holdings, less fractional shares which will get sold, will be transferred. Not to mention, TradeKing reimburses you up to $150 of your transfer fees, so it should be a cost free process. I just went through this myself and had zero issues with it. Let me know if you want me to send you a referral email, or if you want to just check it out on your own. I first used TradeKing back in 2008 when I started an investment club, and only left when it was difficult to maintain that account there (issues specific to partnership accounts). I had no hesitation in going back to them for an individual account.

  2. It’s clear tradeking is the best choice for profits. I might be way off base, but it seems to me that tradeking is a fairly new outfit (or maybe I just didn’t notice them). How long have they been around? Can you trust them if you have a $100,000 or a $1,000,000 account?

    Another way to reduce costs is to do multiple contracts. You can save a lot on fees. Then again that takes a lot of money.

    Nice blog btw! Bookmarked you

    • writing2reality says:

      Thanks for the comment CI! Certainly being able to trust your broker is very important and I would always recommend you do your own research prior to using any particular broker. That being said, I have no problem trusting my money with TradeKing. They opened for business in 2005, and since then have received awards in pretty much every year of being opened. Since first opening an account in 2008 with them, I have never had any issues with feeling as though my money, or investments were at risk. I regularly use their online chat to handle issues or questions, and they are quite responsive.

      However, all that being said, I do have one problem with TradeKing, and that is their policy for corporate accounts. I am an investor in an investment club, which was the account started in 2008 with Tradeking. In 2010 they changed their fee structure in a manner that was not beneficial to my club, or companies in general. They charge a $250 account opening fee, $200 dollar a year account fee, and a $50 a year charge for your 1099. As such, we moved our club’s assets to Schwab, where those costs aren’t an issue.

      Without a doubt, multiple contracts are the way to go, but like you said, that takes a pretty sizable chunk of change.

      And thanks for the compliment and follow!

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