Where most brokers offer relatively similar capabilities when it comes to stocks, not all brokers are created equal when it comes to stock options. Some strategies demand very little of an options broker, whereas more complex strategies require advanced trading capabilities for multi-leg contracts. With this in mind, investors should be mindful of a broker's capabilities before opening a new account.
Here's a review of Capital One's (NYSE: COF) online brokerage, with an emphasis on what it has to offer investors who plan to trade stock options in their portfolios.
Standard trading commissions
Capital One users will find that it has a standard commission schedule in which each options trade is assessed a base-plus commission. Investors pay flat price per trade, plus $0.75 for each option contract traded.
|
Stock options |
Stocks and ETFs |
|---|---|
|
$6.95 per trade plus $0.75 per contract |
$6.95 per trade |
Source: Company website.
Notably, these prices are standard published prices, and some investors may qualify for lower commissions when they sign up for a new account. See a list of current special offers for opening a brokerage account for more information.
Stock options can be used to speculate, generate income, or hedge the risk of loss. Image source: Getty Images.
Multi-leg options and exercise and assignment fees
While many people use stock options strategies that involve simply buying or selling calls or puts, many others employ more sophisticated strategies that involve buying and selling multiple puts and call contracts simultaneously. Unfortunately, Capital One doesn't currently offer multi-leg options trades, making it more suitable for investors who trade one contract at a time.
|
Type of transaction |
Fees and commissions |
|---|---|
|
Multi-leg options |
N/A |
|
Options exercise |
$30 for early exercise, $20 if automatically exercised at expiration |
|
Options assignment |
$20 |
|
Buy to close fee for low-cost options |
Standard price |
Source: Company website.
Multi-leg options trading may be important for more sophisticated and cost-sensitive options traders. A number of brokers currently charge just one base fee per options trade, thus a simultaneous order to buy one put and one call would only incur one base rate charge. Buying two different contracts at Capital One would trigger two $6.95 base rate charges.
Likewise, Capital One doesn't offer a lower commission to buy-to-close, low-cost options contracts. Many investors prefer to buy to close an options contract when the risk of loss is high, and the potential for additional reward is low. Some brokers waive fees to buy-to-close options priced at $0.10 or less for free. Capital One does not. This is most important for people who short options strategies, like selling covered calls.
Minimum deposit requirements for options trading
Capital One has no minimum deposit requirement to open a new cash account for basic stock options strategies. However, higher-risk options trades that involve shorting options typically require larger equity balances across the brokerage industry, as such trades have an elevated risk of loss, and can result in losses that exceed the investors' account balance.
Capital One for stock options trading
Brokers design their prices and feature lists to attract certain types of investors to their platform. Capital One may be better suited for investors who engage in simple options trades, as well as investors who use options sparingly. Given that it doesn't offer multi-leg trading or discounts for buying-to-cover, low-priced contracts, it may not be the best choice for more complicated trading strategies. Many of its best features -- like $3.95 trades for buy-and-hold investors -- are geared toward stock investors rather than options users.
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 on one page and to see if you qualify for extra perks just for opening an account.
