OptionsHouse review (June 6, 2012)
is an online brokerage firm that specializes in options but also offers stocks and mutual funds (no forex though). It was founded in 2006 by its parent company PEAK6 Investments - a proprietary options-trading firm - and is currently one of the mid-sized online brokers. Although it is one of the newer entrants into the market, it has slowly built a good reputation and has been rated among the best options brokers by Barron's. OptionsHouse clears through Apex Clearing Corp after switching from Penson on June 6, 2012.
Their rate for stock trades is a $3.95 flat rate. For stocks priced $2.00 or less that are not options eligible, you need to add $0.01 per share for the entire order. For options, they have two different price plans from which you can choose:
- $5 for 5 contracts ($10 for 10 contracts on spreads)
- $8.50 + $0.15 per option. ($12.50 + $0.15 per contract on spreads)
Despite OptionsHouse's reputation of catering to the higher-end option trader, their "5 for 5" plan satisfies the needs of lower-volume traders. There is also an additional charge of $0.35 per contract on certain index products. These are exchange fees which OptionsHouse has no control over. Customers may trade up to 50,000 shares or 4,000 option contracts per trade; trades in excess of these parameters require multiple order tickets and will be billed as separate orders. There is a minimum deposit of $1,000 for a cash account and $2,000 for a margin account. They also offer IRAs.
The OptionsHouse site is interesting because they use dynamic web pages to stream everything (quotes, account balances, order status, etc) instead of using downloadable software. They have stated that they believe customers prefer having access to a robust trading platform no matter where they are (home, work, mobile, etc) and customers are annoyed with having to download software from different locations (as well as not having their customizations available at different locations). Here is a screenshot of their interface after you log in:
Tools & Benefits
Like all brokers, most of their in-house tools (like screeners, webinars, fundamental research) offer information that you can get anywhere. Hence, these tools are not particularly useful because most traders tend to have outside sites (like Yahoo Finance) where they like to get their charts, fundamental research, etc. Even so, OptionsHouse does offer some options tools which are more sophsiticated than most brokers'. Most of these tools are outsourced from iVolatility.com, which is one of the most sophsticated option analytics web sites. Many of these tools will be particularly useful to traders, such as:
- option greeks (see your greeks on a position-wide or portfolio-wide basis)
- option probability calculators
- option volatility charts (historical volatility vs implied, puts vs calls)
- option strategy profit/loss calculators
- option position risk viewer (how changes in the underlying price affect your options - grouped by symbol, expiration month, or industry)
Here are some other OptionsHouse benefits:
- Some of the lowest margin rates. I believe they may even have the lowest rates outside of Interactive Brokers. Their margin rates are also not "blended" where you pay different rates for the different tiers - once you hit a higher tier, you pay that lower rate on your whole balance.
- Tons of freebies for new accounts. Some of their various sign-up bonuses and promotions codes have been: 100 free trades, free ACAT (account transfer) or wire fees, free Dell monitor, free subscriptions (to The Wall Street Journal or Financial Times).
- A very generous referral program.
- A virtual trading account for people who want to paper trade.
- API access (upon account approval - as well as a $30,000 balance).
- One thing I like about them is that they let you leg into an iron condor without charging extra margin. I notice that you can't do this on Ameritrade.
- Check-writing privelages (not available on all account types)
- MAXIT tax calcalator. This tool calculates your taxable trading profit and loss for the year and generates the required forms. Personally, I feel more comfortable doing my taxes myself. These tools may be attrative for some traders, but given the trouble that the new IRS trading rules (Form 8949) has caused, most professional traders would probably feel more comfortable using software from the market leaders when it comes to trader taxes - TradeLog and GainsKeeper.
OptionsHouse did a major upgrade of their site in the spring of 2011 which offered several benefits, including: more platform customization, upgraded mobile trading capabilities (iPhone), easier spread quoting and order entering, and added support for some exotic order types (OCO, etc). Because OptionsHouse is still in the process of building themselves into being a major player in the market, some of their trading capabilties are not as fully developed as other firms. But they are constantly working on filling in these holes. Here are a few features which were lacking (the last time I checked):
- They didn't have full-blown extended-hours trading capabilities.
- You can't change an open order while the market is closed.
- ACH deposits are held for 3 days.
- Margin requirements are not broken down by individual position.
By offering very low option commissions OptionsHouse has always targeted the market of serious option traders. In a similar vein, they have also stated that they are not particularly interested in becoming a "tutor brand" for beginning option customers.
One of the curious things about OptionsHouse is the surprisingly lukewarm response they received from the option trading community after they opened, despite the fact that they offered options commissions that were WAY lower than the competition. On internet forums, several pseudo-intellectual posters postulated idiotic theories about OptionsHouse - about their supposedly lackluster growth, their supposedly dismal business prospects, and shuffling of CEOs. They said that the real reason for OptionsHouse's lower commissions was that OptionsHouse was using their relationship with PEAK6 to trade off internal order flow - and that the option trading community was ignoring OptionsHouse because the CEO hadn't responded to these self-important posters. These irresponsible insinuations that OptionsHouse is a scam prompted CEO George Ruhana to post to the thread and inject some common sense:
"The reality is that our competitors want to avoid answering why we have a better rate structure. The overarching threat many of our competitors see is derived from the fact that we are actually driving down margins much like widespread trading did for stocks more than a decade ago."
Other posters questioned why OptionsHouse - if it were so great - hadn't put OptionsXpress and Thinkorswim out of business. The reason is simple - most traders are idiots. The fact that OptionsHouse is still much less popular than OptionsXpress despite much lower commissions indicates that most option traders are simply like poker players who don't care about how much rake they were paying. They are perfectly content paying OptionXpress 8 times more in commissions for receiving (relatively) the same value.
And the reason for OptionsHouse's less-than-meteoric growth was simply a lack of brand awareness. If you don't do mass market advertising (TV commercials or banner ads on Yahoo Finance) then your growth will be slow and limited. It was clear that OptionsHouse - with it's considerable financial backing from PEAK6 and a distinct competitive advantage in the form of lower commimssions - was willing to take a long-term outlook and be more patient when it came to their market share growth and overall success. This patience was possible due to the fact that OptionsHouse is a privately-owned company. This means that their strategies were driven by management who was more concerned with creating value for customers, and less driven by investors who were motivated by current-quarter profit expectations or investors looking to just quickly scale a company in order to sell out to a larger broker. Unlike these idiotic internet posters, this is something I appreciate.
OptionsHouse did err by being a bit over-aggressive in initially offering a flat-rate commission on options. They changed course in December 2009 and started charging per contract option commissions, but their rates were still WAY lower than competitors and were lower than anyone else, except for eOption. OptionsHouse representative Shannon Paul cited a decrease in payment for order flow as the reason for the increase:
"The previous flat pricing structure worked fine for OptionsHouse for 3 years since the brokerage opened to the public, however, recent changes in market dynamics caused the company to re-evaluate its pricing. The new rates will go into effect beginning December 15, 2009.
OptionsHouse has always been up front about accepting payment-for-order-flow in order to pass savings onto its customers while monitoring order execution quality. However, payment-for-order-flow rates declined significantly this past year. With more symbols trading in pennies, this trend will continue into 2010. In light of these changes it became necessary to revamp the pricing structure to continue offering low pricing to our customers.
Without getting too technical, payment-for-order-flow is the securities industry practice of providing a monetary incentive for brokers to route their orders through a specific market maker. While OptionsHouse closely monitors order execution quality, when things are equal, we accept payment for order flow in order to pass on that savings to customers.
The reason we are one of the only online brokerages to change rates in response to these market dynamics is that most brokerages maintain margins so big that they donít need to change prices. During the last three years, this practice of passing on savings to OptionsHouse customers has saved them millions of dollars in commissions compared with many of our competitors."
Overall, OptionsHouse has done a very good job in steadily building credibility as one of the best option brokers around. Part of the reason how they have done this is by staying focused on their core customers' primary need - good options trading. They haven't become distracted by over-diversifying their product offerings or pandering to current trends and offering all kinds of useless social investing tools. But now that they are doing more advertising and building their brand, it will be interesting to see if they can keep their focus as they become more successful and inevitably become more broader than they were when they opened.
OptionsHouse is one of the best brokers around. This is for two main reasons. First, they upgrade their trading capabilities very often. Although this may not seem impressive by itself, OptionsHouse actively solicits recommendations from their customers and actually implements many of the particular improvements that their customers ask for, while also giving feedback about specific features on their blog. This is noteworthy because so many brokerage firms pride themselves on being on the "cutting edge of trading technology" by regularly releasing upgraded versions of their trading software. Unfortunately, many of these supposed upgrades are simply over-hyped redesigns coupled with a lot of convoluted fanfare. In these instances, you will receive an email from a broker that invites you to "Check out our new software!", but after you log on, you immediately realize they didn't really do anything new or better. For example, Ameritrade (arguably with their "Trade Architect") and E*Trade (with their "Version 5.0" software) have both done this over the past couple of years.
Another reason OptionsHouse is great is because they are the price leader in options commissions. This is important because the "price leader" within an industry will always be focused on the customer while "price reactors" may lower their prices to stay competitive, but they will only do so reluctanctly.
I have traded over 75,000 options at OptionsHouse
and I am very happy with them. If you are trading a decent volume of options (more than a few hundred contracts per month maybe?), then OptionsHouse should be your # 1 broker, with TradeKing and eOption as backups.