What would you do in my situation? I like to trade (close to) delta neutral butterflies with long calls/debit spreads to balance the deltas, and take profit at 8 -10 % of planned capital, which is $4000 per butterfly. I shoot for $320 to $400 per butterfly. The problem is commissions. Butterfly traders are hit hard by commissions, especially when you take smaller profits to reduce risk. My favorite platform is TOS, but their commissions are just awful. It would be hard just to break even on a winning trade with them if I have to make adjustments/open, close out positions during the life of the trade. They would take 1/5 of my profit even without adjustments. I talked to them on the phone, they aren't willing to budge on their commissions. I told them I'm thinking about OptionsHouse because of their great rates, and they basically accused OptionsHouse of being a brokerage that trades against their clients, whereas they, TOS, send orders straight to the floor. They said that's why their rates are so low. I'm not going to take their word for it because they're competitors and would probably lie about each other. But having traded Forex in the past, I'm very keen to avoid brokerages that would be trading against my positions, and therefore have a stake in wanting me to lose. Another brokerage I'm considering is eOption. Their commissions are great ($.10 per contract). But I know little about them and they don't have a demo platform. I know IB is professional but they're still a little high at about $.70 per contract. Any thoughts on brokerages like OptionsHouse and eOption? Are they bucketshops that take the opposite positions of their client's trades? Why are their prices so low compared to the other larger brokerages? The basic conundrum is this - I can go with a lower commission broker and trade SPY/IWM (which I would prefer to do because of the liquidity), or go to one of the bigger brokerages (IB, TOS) and start out trading 1 butterfly SPX/RUT positions with SPY/IWM calls to control deltas, in order to avoid the huge commission hit. But I'm a bit worried about trading SPX/RUT because of the wide spreads and less liquidity. I'd be worried about being able to get out of a position quick when the market makes large, unfavorable moves. What would you do in my situation if you were trading these strategies and needed a good commission rate but want to avoid bucketshops? Any thoughts on SPX/RUT vs SPY/IWM?
i will make this very simple for you. forget TOS, it really is not that good. i wouldn't recommend optionshouse either. go with IB, LVX, WEX or Obsidian.
Thanks for the recommendations. Could you be more specific as to why you don't like TOS/Optionshouse and why you like the others? Also do these brokers even accept individual retail clients? Can't find info on their website, I'll have to call them. I won't be trading huge numbers of options anytime soon.
I was reading reviews about Interactive Brokers and came across this review that spooked me a bit. It can be found in the following link: http://www.yelp.com/biz/interactive-brokers-llc-greenwich "WARNING!!!! YOUR MARGIN ACCOUNT IS A TICKING TIME BOMB AT INTERACTIVE BROKERS!!!! I'm a professional options trader and also a series 4 Finra Registered Options Principal. I make money off income option strategies, such as iron condors and credit spreads. These strategies are of fixed margin requirement and fixed loss. Nevertheless, IB force liquidated my positions and created a loss in my account that would have been greater than if all my trades had gone wrong. This happened when I had more than enough liquidity in my account to cover my fixed margin requirement. They run a real time leverage algo on your positions and if it crosses their threshold they automatically force liquidate, regardless if your allocation is of fixed risk, regardless of your excess liquidity, and regardless of the fact that these index options they force liquidated are European style and cannot be exercised before expiration. They can't turn off the algo either when I told them it was going nuts in my account, i had to do a stressed white knuckle transfer of my positions and cash to Thinkorswim before they completely wiped me out. They do not disclose this leverage threshold on their website under spreads and iron condors margin requirement, instead saying that the requirement is fixed as it should be. But the fine print says they can change the margin requirement anytime they want and blow up your account. Never in my years of trading have I or any other seasoned option trader heard of such a thing happening. Rather than admit guilt, IB hides behind a wall of limited liability. Either they are first class idiots or crooks. I am currently in Finra arbitration against them and hope to recover my money. This has gone on for two years now and has been a horrible ordeal. IF YOU TRADE ON MARGIN AT INTERACTIVE BROKERS, I BEG YOU TO CLOSE YOUR ACCOUNT AND TRANSFER YOUR ASSETS IMMEDIATELY!!!" Does this happen regularly at IB?
Like many others, I trade with IB. I was with VFM before. Bottom line, I am very conservative in my trading, it would take a real black swan crash for me to even think about margin issues. If you skate close to the edge with IB, then yes you do need to be concerned, because they will auto liquidate. If you are thinking that maybe you might cross the line from time to time and want leeway from your broker, I can't suggest one, but I can tell you for sure it's not IB.
Wex and Obsidian are trading platforms, not brokerages. You would still need a clearing firm if you used these platforms. A few more things to consider. TOS is 'all in" on commissions. For example if you trade the SPX or the VIX, you will be hit with about .50 extra per contract in exchange fees. TOS will not pass these on to you, so if you mainly trade in single listed products, TOS might be cheaper.
If you're trading butterflies or any kind of spread all brokers are going to internalize your order first. And someone posting something like "WARNING WARNING!!" shouldn't be taken seriously anyway. IB margins both sides of an iron butterfly/condor so it takes up more margin but it's a front-end built more for speed and efficiency. I've read a ridiculous number of posts that say the same thing "IB's better for commish but customer service sucks". Anyone who needs "customer service" shouldnt be at IB in the first place.