Many know Vanguard for pioneering the index fund, but the company also offers brokerage services for trading everything from stocks to stock options. Let's review how Vanguard stacks up for investors who use options in their investment portfolio. Here's what investors should know before opening a brokerage account to trade options.
Vanguard's commission prices
Ultimately, commissions are just one factor that goes into choosing a broker, but they are certainly one of the more important factors to consider. Vanguard employs a commission structure that rewards its most loyal investors with lower commission prices for investing more in its mutual funds and ETFs.
|
Assets in Vanguard Funds and ETFs |
Stock Option Commissions |
Stock and ETF Trades* |
|---|---|---|
|
Standard (Less than $50,000) |
$20 per trade + $1 per contract |
$7 for the first 25 trades, $20 thereafter |
|
Voyager Services ($50,000 to $500,000) |
$7 per trade + $1 per contract |
$7 per trade |
|
Voyager Select Services ($500,000 to $1 million) |
$2 per trade + $1 per contract |
$2 per trade |
|
Flagship Services ($1 million to $5 million) |
$2 per trade + $1 per contract |
Free for the first 25 trades, $2 thereafter |
|
Flagship Select Services ($5 million or more) |
$2 per trade + $1 per contract |
Free for the first 100 trades, $2 thereafter |
Source: Company website. *Vanguard ETFs are commission-free.
Importantly, the prices above only reflect published prices, and there are important nuances to understand when it comes to commission prices, which we'll dive into in a moment. Some investors may qualify for special offers for opening an account, including perks such as commission-free trades and cash bonuses, which serve as an effective discount to published prices.
Vanguard offers commission prices that reward loyal clients. Image source: Getty Images.
Multi-leg options and exercise and assignment fees
The beauty of stock options is that they can be used in any number of ways. Some investors simply buy puts and calls, others write puts to generate income and to buy stock, and a smaller percentage employ complex option strategies that involve buying and selling multiple contracts in one order.
|
Type of Transaction |
Fees and Commissions |
|---|---|
|
Multi-leg options |
No limit to the number of legs, but each leg incurs a base commission. |
|
Options exercise and assignment |
Standard: $20.00 + $0.01 per share Voyager Services: $7.00 + $0.01 per share Voyager Select and above: $2.00 + $0.01 per share |
|
Fee for low-price options |
No discount. Low-price options are treated like any other options contract. |
Data sources: company website, company representatives.
Vanguard's value proposition for options traders varies tremendously with how much the investor has in its funds and ETFs. Complex option trades may be prohibitively expensive for small accounts, as a two-leg options trade involving 10 call contracts and 10 put contracts would result in two base rate charges of $20.00, plus $1.00 for each contract. The total commission for this trade would be $60.00 (2*$20+2*10*$1). For wealthier clients, the trade would cost as little as $20.00 (20*$1).
Importantly, Vanguard doesn't discount commissions for options with a low value. At a commission price of $1.00 per contract, the commission would equate to 10% of the value of a trade involving options priced at $0.10 each. Other brokers have discounted commissions for low-price options.
Minimum deposit requirements for options trading
Vanguard doesn't require a certain minimum deposit to open a brokerage account, and thus investors can get started with whatever they deem appropriate. That said, options strategies that expose the investor to potentially higher losses (writing put options, for example) typically require larger account balances. All brokers have their own risk-management policies that vary by the type and size of a trade.
Review: Vanguard for options trading
Given its comparatively high commissions for each contract, Vanguard is perhaps best suited for investors who keep substantial sums in its funds and ETFs, and who use options sparingly. Those who merely dabble in options might find the convenience of keeping their accounts in one place to be a motivating factor behind choosing Vanguard, but particularly active options traders might gravitate toward lower-cost brokers. To be clear, The Motley Fool does not endorse any particular brokerage, but we can help you find one that is a good fit for you. Check out the Fool.com Broker Center to compare several brokers all on one page and to see if you qualify for extra perks just for opening an account.
