Remember just a few years ago $1.50 was unheard of.... I like the idea of leveraging a new commission with the size of the group but what Chris says here is good business, I know I am not producing a huge revenue stream for TOS. :-)
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On January 28, 2010 at 4:20 PM TheOptionClub <chris@theoptionclub.com> wrote:
It's probably worth taking a moment to explain the history and the
reason behind the $1.50 commission deal with TOS...
That commission rate is a "no questions asked rate." You tell the guys
at TOS that you're with TheOptionClub. com and you get the rate. That's
true whether you're funding accounts with $3,000 or $300,000. It
doesn't matter if you execute 10 trades a day or 10 trades a year. You
get the rate. This is the same rate they offer their Investools
clients.
The reason I asked them to do this is because members of this group were
trading a lot of multi-legged spreads like iron condors, broken-wing
butterflies, etc. The discussions about those trades on this board
concerned me because people who were learning how to trade them were
trading what I thought was dangerously large size and when I raised that
as an issue the response was that they needed to trade large size to pay
for the commissions.
That struck me as absurd. Risk a large portion of your portfolio while
learning to trade options because you're too cheap to pay the
commissions? And folks were losing sizable chunks of capital because
they got themselves into positions that started losing money and they
did not have a plan or an understanding of how to manage the trade.
I spoke with Scott Sheridan at TOS and I think I tried contacting the
folks at OptionsXpress around the same time. I either did not get a
response from OX or they were not interested. What I asked for was a
commission schedule for our group that did not involve a minimum or a
ticket charge, and that would allow members to trade 1 or 2 contract
multi-legged positions without a "commission penalty." In other words,
the cost of putting on the trade would be proportionately the same
whether you traded a 1 contract position or a 100 contract position. My
hope was that people would scale back their size, learn to trade with
limited amounts of capital at risk, and scale up over time as their
experience and success allowed.
Is $1.50 the best you or I can do? No.
As you increase both your account size and your trading volume you will
have the ability to ask for and receive further discounts on your
commissions. Many of the members here have seen their commissions
reduced when they have asked. But, if you've got a $3,000 account and
you trade sporadically it is a tougher sell.
Is $1.50 too much? It depends...
If you are trading routinely and with size it is probably a bit pricey.
I would push to get a $1.00 per contract, if not less.
Reducing commission costs is like a company increasing its profits by
reducing its bottom line expenses. They are still making / losing the
same amount of money, they're just giving up less to expenses. If your
trading is consistent and profitable, shaving .50 off the cost of each
contract bought and sold means that you keep that extra .50 which
is$1.00 on a calendar spread and $2.00 on each iron condor traded.
Trading a 100 contract position? It adds up.
If you are just learning how to manage a position and you're trading the
remnants of what used to be a $5,000 account...commissio ns are not your
problem. I have never seen a trader who made or lost money because of
their commissions schedule. You can make money at $1.50 per contract.
You can learn to trade options at $1.50 per contract. But if you're
finding that the difference between profitability and taking a loss is
50 cents or even a $1.00 on a contract, then your time and energy is
better spent on refining your trading practice.
A bit more insight here...
Experienced, successful traders don't require much in the way of hand
holding. They have their occasional call to the trade desk, but they
know their business. Inexperienced traders need help. They don't know
how to use the trading platform. They don't know how to execute a
trade. They're scared and unsure about what happens if they're assigned
on a short option. They have trouble breathing when a trade gets
sideways on them and they're trading a bit more size than they should
be. They tend to ask a lot of questions. AND THEY SHOULD! They're
just learning after all...
But, when a new trader picks up the phone and calls the trade desk or
the customer service number a live person needs to answer, hold their
hand and help them. When you're learning, that's worth 50 cents.
If it wasn't I would send everyone to Interactive Brokers. They're
commissions are the lowest out there and their executions are as good as
you're gonna get. But, if you go there you had better know your
business because you won't get a lot of help. When they're only taking
.70 on a contract they don't have the time to care about you, your
$3,000 account, or that 2 lot that's now in the money.
Christopher Smith
TheOptionClub. com
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