June 25, 2010, Newsletter Issue #162: Six important things to consider

Tip of the Week

You have studied and read about the options basics. You are excited about the potential for big profits in the options market, you understand the risks involved, and you would like to start your own options trading program. So what´s the next step?

If you have not done so already, you must establish an equity options account with a brokerage firm. The following are some important factors to consider when choosing an options broker:

Options Expertise. Does the firm have brokers available who specialize in options (preferably Registered Options Principals (ROPS), who must pass the Series 4 test to show their options knowledge) to handle your orders and answer questions?

Account and Margin Requirements. What is the minimum account size for options trading at the firm, and what margin requirements does it demand?

Commissions and Fees. What are the firm´s commissions for options trading and its fees for maintaining an account or using other services?

Service. What kind of personal service and attention will you get with your account, and what kind do you need?

Automated and Electronic Services. Does the firm offer touchtone trading or Internet/PC trading?

Features. Can you access quotes cost-free from the firm´s computer for options positions you either hold or are analyzing? Does the firm offer electronic trading and written confirmations on each trade? Does the firm offer such account features as check writing, bank wires, and monthly statements?

Reputation. Does the firm have an established reputation for executing trades promptly and going the extra mile for its customers?

You should begin the process of selecting a brokerage firm for your options trading by gathering information on several firms and consulting with colleagues, friends, and relatives for referrals. Before you make your decision, weigh your various needs and resources to see what type of broker would best fit your situation. For example, a very experienced options trader looking for low commissions, minimum margin requirements, and the ability to trade via phone, or computer may choose to establish an account with a no-frills, deep discount broker. On the other hand, an investor relatively new to options trading who prefers personal service may decide to go with a full-service broker who is knowledgeable in options, can take orders over the phone, and has a walk-in office. Your personal situation will determine the most appropriate type of broker for you.

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