10) Selecting a Broker
If you are new to options trading, you likely have the question, “which broker would you recommend for options trading?”
I would recommend TD Ameritrade as a great place to trade options. They offer the trading platform called Think or Swim, which offers an abundance of high quality trading tools for options traders.
I will be using TD Ameritrade’s Think or Swim platform in many of the video lessons, this should help you to become more familiar with the software. Then, as you learn the ins and outs of options trading, you’ll also be gaining experience with a very powerful options trading platform.
How Much Does it Cost Per Trade?
The commission rates for options trading are commonly stated with 2 parts…
- Cost per “contract”
- Cost per “leg”
A “contract” is to options trading, as “shares” are to stock trading. When “buying” or “selling” options you’ll select how many “contracts”.
A “leg” refers to a grouping of an options order.
An example of a 1 Leg Order : A simple call or put
- buying 1 call
An example of a 2 Leg Order: A more advanced order, such as a bull call spread is 2 legs, because a bull call spread entails 2 groups:
- buying 1 group of calls
- and selling 1 group of calls.
TD Ameritrade’s Rates at the time of this article are $9.99 per leg + 75 cents per contract.
What are Option Approval Levels?
Within your brokerage account, you’ll need to be approved to trade options. Depending upon which option strategies you wish to use, you’ll need to be approved for different levels. While these levels vary between brokerages, they are very similar. Here’s a rundown of what is commonly allowed at each approval level.
Approval Level 1
Within the first approval level, you’ll be allowed to purchase Covered Calls. This is a strategy where for every 100 shares of stock you purchase, you sell 1 option call contract. It is viewed as a low risk, low return strategy. Henceforth, why it’s allowed on the lowest approval level.
Approval Level 2
At level 2 you also be allowed to buy calls and puts.
For the OptionsElite service this is the minimum level needed to follow our alerts.
Approval Level 3
At level 3 you also be allowed to buy spreads.
Approval Level 4
At level 4 you’ll gain the ability to play naked calls and naked puts. These can be extremely risky strategies, because they have limited return and UNLIMITED loss potential.
Therefore, why you aren’t allowed this type of trade strategy unless you have a very high approval level.
TD Ameritrade’s Options Approval Levels
|Cash Accounts||Margin Accounts|
|Level 2 (Standard)||
|Level 3 (Advanced)||