by Bryan Perry 07/11/08
There are a variety of options brokers out there, ranging from the self-serve online brokers to full-service outfits. Which is right for you?
Keep in mind that you get what you pay for, and that's OK if you're getting the level of service that you need and want. Whether you're an experienced trader or you're doing mostly straightforward transactions like buying calls and puts, you likely wouldn't require a lot of (or any) interaction with your broker. Thus, a self-service shop with commission rates in the $1- to $3-per-contract range could be a good fit for you.
On the other hand, if you'd benefit from having someone available to answer your questions or if you might need some extra guidance on more advanced strategies and how to best use them in your portfolio, the commissions might look more like $5 to $7 or maybe a couple dollars higher per contract. It might be worth looking into if you'd like additional guidance on your options trading journey.
If you believe you'd fare best with a full-service broker, it's important to determine their level of expertise, particularly in regard to their comfort with and understanding of the options markets. Be sure to ask whether they have a Series 4 license, which is a Registered Options Principal designation.
(The Series 4 is over and above the Series 7 that is necessary to act as a securities broker and is a good indication of the commitment that a particular broker has to options trading and -- in particular -- the customer who is coming to them to help them trade options!)
Discuss with your potential broker what his or her typical clients trade -- your relationship with your broker is just like any other, as there needs to be a good match between your needs and their abilities. Once you've decided that you're in good hands, you can move on and identify your individual risk profile.
Keep in mind that you can give your broker discretionary authority over your trades, or you can simply give stop-loss and profit parameters for them to work with. This is not a decision to be taken lightly -- after all, it's your money that you're trusting them with!
No matter what you choose, once you're comfortable with the broker and his or her ability to handle your orders, you can trade with confidence!
Once you pick the right broker, the next step is knowing how to "talk the talk." Check out Ken Trester's "Use Limit Orders on Options Trades" to learn how you can save money before you start making more!
Until a time comes around again when we're able to extend our holding periods for long-side trades, the strategy is simple: Keep it short and sweet.
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This isn't our parents' stock market, thanks to the explosion of the derivatives markets during the past few decades that we can use to our advantage!
Create Options 'Basket' Profits
Basket trades are an amazing way to make profits, whether you're a swing trader going for the quick gains or an options trader looking to leverage those moves for up to 10 times the gains.
