# Options trading - best discount brokerage?



## Excession (Nov 4, 2012)

Hi there experts! I've recently started option trading a few months ago and have done fairly well -- I definitely intend to trade more as time goes on. However I've been using Questrade for this -- for most purposes it's a great discount brokerage (low stock commissions, good new user client, good reports). HOWEVER, the option commissions are higher than I'd like to pay ($9.95 + $1/contract).

For you options experts, is there a discount brokerage you recommend? I know Interactive Brokers seems like the absolute cheapest (only $1 option trades!), so I'm REALLY tempted to move 20K or so over there and do all my option trading with IB instead.

For what it's worth, I mostly sell naked puts (mostly cash-secured, but not always) on US stocks. Would IB care if I sold a ton of naked puts without the cash in the account, as long as they were all still out-of-the-money?

Thanks in advance!


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## Snuff_the_Rooster (Oct 26, 2012)

http://individuals.interactivebrokers.com/en/p.php?f=margin


From there click on "Options" Tab.

You can also click on Examples, Calculations and just go nuts reading all the provided info.

I might suggest you look around the forum at traders that employ straight-up selling of naked options and ask yourself if you're prepared to handle the volatility and responsibility. 




> Would IB care if I sold a ton of naked puts without the cash in the account, as long as they were all still out-of-the-money?


They don't care what you do as long as it meets the margin requirements - see above links.

Here's the link to the commission's page for IB. Remember the check the details of costs with respect to options, routing etc.

http://individuals.interactivebrokers.com/en/p.php?f=commission


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## metatheta (Oct 1, 2012)

I use IB for order execution because it is the lowest commission I can find. However, I find that the commission they charge me is unpredictable. For example, I sold 2 FB puts last month for 0.02 commission filled at the BATS exchange. That's right, two cents, wow. When I bought it back after the earnings pop, it was filled at the NASDAQ exchange for 3.10 commission.

For commission intensive multi-leg trades like iron condors, I get an average of 0.70 per contract to 1.50 per contract. I find that the worst commissions are charged by the PSE exchange. Yeah, its the worst commission and it seems that most of my fills are done at the PSE!

I asked about the unpredictable commission charges and all they told me was that you get charged more when removing liquidity and get rebated when adding liquidity. I've placed limit orders outside the bid/ask prices and still find it unpredictable when it eventually gets filled.

I've tried routing the order directly to an exchange rather than using their SMART routing. I found it more predictible at a higher commission. I went back to SMART routing because I sometimes get lucky with a super low commission like the FB trade.

Furthermore for single leg orders, they charge a cancellation or modification fee. It makes me think twice about placing a limit order because I may have to cancel it or adjust it should I change my mind. If they are day orders that do not get filled, they cancel without fee. Luckily for combo spread orders, they do not charge cancellation and modification fees.

All in all despite all these nuances with IB commissions, it is still the cheapest I can find.


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## Snuff_the_Rooster (Oct 26, 2012)

metatheta said:


> I use IB for order execution because it is the lowest commission I can find. However, I find that the commission they charge me is unpredictable. For example, I sold 2 FB puts last month for 0.02 commission filled at the BATS exchange. That's right, two cents, wow. When I bought it back after the earnings pop, it was filled at the NASDAQ exchange for 3.10 commission.
> 
> For commission intensive multi-leg trades like iron condors, I get an average of 0.70 per contract to 1.50 per contract. I find that the worst commissions are charged by the PSE exchange. Yeah, its the worst commission and it seems that most of my fills are done at the PSE!
> 
> ...


Yeah, what he said. 

Commissions all over the place but still the best deal I've seen. I thought they just spun a wheel and applied whatever rate came up.

EG I opened a spread one day for I don't know exactly but let's call it $160.00 com's. 3 days later I closed the same spread for $80.00 com's.


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## metatheta (Oct 1, 2012)

Snuff_the_Rooster said:


> I thought they just spun a wheel and applied whatever rate came up.


Yeah, it feels that way. Whenever I get a fill, the first thing I look at is what commission was charged.


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## Excession (Nov 4, 2012)

Thanks guys. Looks like Interactive Brokers is the best place to trade options in Canada then. I will open an account with them next week! I'll let you know how it goes, can't wait to save big on those commissions! 

I'll probably keep my other accounts with Questrade as their stock commissions are still low and I like their interface.


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## Lephturn (Aug 31, 2009)

The question with all of the "smart order router" systems is, smart for who?  In the end I think IB is actually quite transparent about it, while almost all other brokerages hide the complexity of the 10 or so options exchanges all with different pricing and fee structures. Some exchanges use a "maker/taker" model - that's what they are talking about re: removing liquidity vs. adding liquidity - and to be clear that has nothing to do with IB it is the exchange pricing model. IB just seems to be passing on the fees with a very tiny mark-up. The vast majority of all brokerages are simply hiding this complexity and often using the rebates and payment for order flow to help their profit margin.

Just be aware of what the smart router is doing - I like to choose my route based on liquidity and fills more than commissions. This isn't as big a deal for single leg trades, but for spreads it's much more important to pick a route for a good fill.


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## Snuff_the_Rooster (Oct 26, 2012)

I put on (and modified later) a few option trades today. After execution I noted the costs.

a few hours later I was going back over the log and noted a reduction in fees?? Either that or I read it wrong the first time.


I just received the following bulletin from IB.



> OPTION CANCELLATION/MODIFICATION FEE REDUCTION
> 
> As part of our continued commitment to provide the most cost-effective execution services, Interactive Brokers (IB) will be conducting a test of a software upgrade intended to evaluate the impact of reducing or potentially waiving U.S. option exchange order cancellation and modification fees. During the test period, which begins November 6th, we will reduce cancel fees by approximately 60% while applying the current execution credits in full and encourage you to use this opportunity to modify and/or cancel orders with these reduced fees in mind. Moving forward, our plan is to further reduce the fees in a measured fashion, and potentially waiving in full, after taking into consideration the overall impact to IB of absorbing these exchange fees. Please note that this waiver applies solely to U.S. option orders and does not apply to U.S. API/CTCI directed stock orders or European option and futures orders. We appreciate your participation and welcome any feedback you may have regarding this change.
> 
> ...


For what it's worth.


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## Excession (Nov 4, 2012)

That looks like great news, thanks Snuff!

Got my application with IB under way, i am seriously excited to start saving on fees. When you think about it, Questrade literally charges 10x the commissions that IB does for one option trade... !:smilet-digitalpoint


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## metatheta (Oct 1, 2012)

Thanks Snuff for pointing this out. I had a short put limit order yesterday that I wanted to adjust but I backed off because of mod fees. I never got filled. With lower mod fees, I won't hesitate next time.


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## Snuff_the_Rooster (Oct 26, 2012)

No problem guys. 

I modify my orders all the time as I arm-wrestle the market, so I'm real happy to hear this news too.

Of course it's not, but I call IB Free Trading haha. We used to pay several $K - 15? a quarter to other firms from what I recall. It was just nuts. We discussed a modified fee with one but we couldn't come to a mutual agreement. I guess they wanted 100% of nothing.

Looks to me like they won that one.


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