Updated June 9, 2015

Study: Best Brokerage for Options - OptionsHouse vs TradeKing vs OptionsXpress

Read more about Options Trading
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Options trading is not an advanced investment strategy reserved for the most experienced of traders and certain undomesticated canines of Wall Street. When used correctly, options can help add flexibility to an investor's portfolio and offer some protection when the market goes down.

© Andreas Poike (CC BY 2.0) via Flickr

Of course, greater reward mean greater risk, and options trading is not recommended for the first-time investor. But if you’re already comfortable investing with stocks, then you may want to consider making options a part of your portfolio. We’ll explain a bit below before getting into the details of three popular options brokerages.

When you buy an option, you’re buying a contract that grants you the right to buy (or sell) a stock at some future date for a specific price - but you don’t own it. So that means you don't have voting rights or access to dividends as you would with a stock.

Here’s How It Works

Typically, one option contract equals 100 shares of the underlying security. The two most basic types are a call option, which means you plan to buy shares, or a put option, which means you plan to sell shares.

Options allow investors to gain a significant amount of shares in a company for a fraction of the price. For example, you think the price of a stock is going to rise from $50 to $60. You can buy a call option with a strike price of $55. If the stock rose to $60, that would allow you to buy the stock at $55, netting you a $5 profit on each share minus the option premium.

One of the biggest negatives of options are the fees. You pay an amount for the option premium, but there are usually other trading costs as well. There is the chance that your option will expire worthless and you will lose the premium. Those losses can hurt your profits.

To help you decide whether options trading is right for you, CreditDonkey has reviewed three of the top online brokers for options — OptionsHouse, TradeKing (now Ally Invest) and OptionsXpress — to see how they compare.

5/8/2017 Update: TradeKing is now Ally Invest. Read our in-depth Ally Invest review.

Study Methodology

Here are the main factors we considered:

  1. Fees & Commissions
  2. Trading Platform & Research
  3. Customer Service

We rated each brokerage on a 1-5 scale, with 5 meaning it has superior service and breadth of (excuse the pun) options in that area. As with any investment, fees and commissions should be a major factor in deciding which options provider to use. You want to make sure that your investment strategy pays off for you and not necessarily for your broker. Also, many brokers offer different pricing plans based on how many options you trade, so the best broker for a casual trader might not be a good choice for an active investor.

You’ll also want sophisticated tools to help you take advantage of the benefits that options provide. Each broker offers its own trading platform with varying degrees of customization. The platform should make it easy for you to research a stock without getting bogged down by a lot of unnecessary charts or statistics. Having a platform that adapts to your needs is key to successful investing.

Another essential for an options broker is access to research and education. Many online brokers attract new investors with low commissions but fail to provide the tutorials that will keep them trading. The best brokers teach you investment strategies and give you a virtual trading arena to see how those strategies work (or don’t work) in real-time.

Customer service comes in handy when you’ve got a question or find yourself lost amid a sea of graphs and charts and need some help to get back. Also, investing is time sensitive, so you want to make sure that if something goes wrong with the platform, someone will be there to make it right.

Best Fees & Commissions: OptionsHouse

  • Fees & Commissions: $4.95 base + $0.50 per contract, 5/5
  • Trading Platform & Research: Virtual trading, webinars, 3/5
  • Customer Service: Telephone, e-mail, instant chat, M-F only, 4/5
  • CreditDonkey Score: 4/5

If you want to start investing in options but don’t want to spend much money, then OptionsHouse is the best broker for you. It has the lowest costs of any major options broker, which can lead to big savings for all types of investors.

OptionsHouse sells contracts based on how many you plan to buy. Investors pay a base of $4.95 plus $0.50 per contract. That means you can buy 100 contracts for $54.95.

Another bonus for options newbies is OptionsHouse’s Virtual Trading Platform. You’ll have $5,000 in virtual money to try out new strategies or just practice your options techniques.

Why We Like It
OptionsHouse understands that one of the easiest ways to make more on your investments is to spend less on fees and commissions. Beyond the price, OptionsHouse also has more options-specific trading tools than the competition. It’s an ideal combination of “for options traders, by options traders.”

Its Downsides
OptionsHouse provides the tools for trading but comes up short on teaching you how to use them. Novice investors looking for a master class on Options 101 will need to seek out third-party assistance.

Who It Works Best For
The low costs make OptionsHouse ideal for high volume traders. Those who are just getting started in options should consider a broker that offers more education for a higher price.

Best Research: OptionsXpress

OptionsXpress

  • Fees & Commissions: $4.95 plus $0.65 per contract, 4/5
  • Trading Platform & Research: Virtual trading, Xpress Method education training, 5/5
  • Customer Service: Telephone, e-mail, instant chat, live help available Saturdays, 5/5
  • CreditDonkey Score: 4.6/5

OptionsXpress is the options-focused trading platform owned by Charles Schwab. It offers an extensive list of research tools that help break down the risks and rewards of options trading.

You can practice trading without spending a dime, though, using the broker’s Virtual Trade. OptionsXpress gives you a free $25,000 virtual account that can access most of the tools that you’d use with real money, just without the risk (or reward).

Why We Like It
OptionsXpress offers some of the most comprehensive investment tools on the market. Its online education center has all the lessons and tutorials you need to become a smart options investor. This includes the XpressMethod education center, which features several easy-to-follow videos on getting started.

OptionsXpress also excels in customer service. Help is available Monday-Friday until 10pm EST, and it is the only broker in our study that offers live help on Saturday.

Who It Works Best For
OptionsXpress really does provide an essential education for options investing, making it a solid choice for beginners.

Best Value: Ally Invest

Ally Invest

  • Fees & Commissions: $4.95 base rate + $0.65/contract, 4/5
  • Trading Platform & Research: Options scanner, Options Education Center, 4/5
  • Customer Service: Telephone, e-mail, instant chat, M-F only, 4/5
  • CreditDonkey Score: 4/5

Ally Invest combines low prices with extensive research to make it one of the best brokers for options trading.

Each contract at Ally Invest costs $0.65, plus a flat rate fee of $4.95. That means a trade with 100 contracts will cost $69.95. The pricing is simple, straightforward and much lower than most of the competition.

Despite the low cost, Ally Invest offers research and tools that rival more expensive brokers. It has options-specific scanners to help gauge risks and an education center that’s designed for options rookies.

Why We Like It
Ally Invest provides a robust options trading platform for the lowest price. The education center is filled with information that will help young investors learn new strategies and help experienced traders brush up on their techniques.

Its Downsides
TradeKing lacks a virtual trading account for options investing.

Who It Works Best For
Investors just getting into options trading will find Ally Invest the perfect place to start. The broker works well for high volume trading as well, but you’ll save money going with OptionsHouse instead.

Other Brokers to Consider

If you’re looking for an options broker with a more personal touch, TD Ameritrade offers competitive contract prices with the benefit of physical locations. Options orders are $9.99 plus $0.75 per contract.

Trading options is a risk but, like with any good investment, it’s a risk that can pay off. Perhaps this review has been the push you have been waiting for to explore what else the investment world has to offer beyond stock trades.

Ross Frasier is a research analyst at CreditDonkey, a stock broker comparison and financial education website. Write to Ross Frasier at ross@creditdonkey.com. Our data-driven analysis has been recognized by major news outlets across the country and has helped investors make savvy financial and lifestyle decisions. (read more)

Disclaimer: Opinions expressed here are those of the author's alone. Please support CreditDonkey on our mission to help you make savvy financial decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

More from CreditDonkey:


OptionsXpress Review


Ally Invest Review


OptionsHouse Review

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