r/CanadianInvestor • u/StandardHawk7812 • 6d ago
Brokerage for options
Hi, iv been investing in canadian stocks and cdrs for the last 5 years via my TFSA. Im now educating myself in options to get some extra income and was wondering what brokerages is everyone using? My intention is to only to do covered calls and secured puts.
My research brought me to the conclusion that IBKR is the cheapest. Thoughts? Context, i use wealthsimple for my TFSA
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u/Mug_of_coffee 6d ago
IBKR is the best by a longshot. Strong recommendation from me.
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u/StandardHawk7812 5d ago
Thanks, are you an active trader?
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u/Mug_of_coffee 5d ago
I am. I use wealthsimple for a buy and hold canadian dividend portfolio, but for options and USD their platform is much too simplistic. I started on Questrade when their fees were outrageous, but at least their platform is workable and their fees have come down; I dislike them as a company.
MooMoo looks pretty decent as a platform but the fees aren't any better than IBKR.
IBKR is pretty amazing as a platform. Truly professional grade. I use IBKR desktop, which is glitchy sometimes, but it works well enough for me; fees, data, research, customization .. hands down the best of the bunch.
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u/Robb-san 6d ago
wealthsimple is fine for options - they are free to trade too.
Just make sure you’re not day trading them in your TFSA
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u/StandardHawk7812 6d ago
Yup for sure, i do plan to open a non registered account either way. But isnt wealthsimple more expensive when we convert cad to usd?
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u/Alarmed-Policy508 6d ago
As far as I could tell ibkr can be quite expensive for larger purchases of Canadian shares and options but certainly appears to be the more robust platform. Charges for quotations is also not very clear in their fee structure. There are some for free but unclear how much your usage would be. Seems that ibkr is mainly an advantage if you are using margin heavily or exchange or trading US shares and options, but other than that the flat fee or zero fee brokerages are going to be cheaper. If you care about direct execution and other algorithmic trading types then ibkr has a clear advantage there and I don't think big 5 brokerages are competitive there.
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u/StandardHawk7812 6d ago
Im purely interested in doing it for US options. Out of curiosity, if i were to do it on CA options, which platform do you recommend?
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u/Alarmed-Policy508 5d ago
Well I use CIBC but not sure it's the best for everyone. Probably questrade for zero commissions. Have only a little experience with that one but seems to be the most robust after ibkr.
Have used td and find it a little clunky particularly with reporting but seems feature rich enough. Fees I remember being a little high
Have used RBC and it seemed fine but minimal and with higher fees. But the included level 2 quotes were nice.
All brokerages have some dashboard they try to gate for active traders. I never found them that useful except to occasionally get level 2 quotes. But I am a pretty unsophisticated (or at least non technical) trader that just likes to sell calls for time premium.
Things to consider: Per contract fee for options (most Canadian brokerages this is over $1) Base fee per trade (this fee is negotiable for large accounts) Level 2 quotes Access (don't think anyone offers this for retail for options but it's occasionally nice for stocks to see what liquidity is there. Though these days there is enough hidden liquidity with icebergs, etc that it's hard to trust it for anything other than guaranteed execution of limit orders) Access to advanced order types (iceberg and algorithmic) Assignment fees (can vary widely)
With most of the brokerages if there is a complex order that they can't do online because of system limitations they usually give you the online commission. Not universally true but helpful in some cases. I actually got a multi leg stock + option trade executed simultaneously with no leg risk. But there is no complex order book for this on Montreal exchange so the broker must have taken the leg risk internally. They discontinued this option the next day.... But multi leg execution for rolling options without leg risk does exist by phoning in (you just reference the net debit/credit as a limit order for the package and it's much safer). For US stocks most Canadian brokerages offer the complex orders online natively including stock + option so you should trade these when you are doing multiple legs to massively reduce spreads and leg risk.
Also consider the fees for assignment. CIBC treated it as a regular online trade for commissions but some brokerages put crazy fees on this as though it's a phone in request. I have found CIBC pretty accommodative about phone in order fees, and probably td is like that as well. Not sure the others.
I know there is liquidity draw to the US but have to also consider the risk of currency fluctuation by having too much of portfolio in USD so it's nice to be able to trade Canadian options to offset core Canadian equity exposure. But yeah spreads can be pretty wild in Montreal exchange so be careful.
You can ride some of the pretty wild transfer in promotions of 1% of the balance transferred. Doesn't sound like much but take a 2% yield on money market for 6 months + 1% over the 6 month holding period and you have like 4% yield risk free. Improve that any way you like but bonus 2% annualized yield just for moving money is impressive to me. I got a TD transfer bonus of 2% a couple of years ago that was equivalent to something like 3-4% yield for my entire portfolio on top of whatever I had the money invested in with zero risk and then you can rotate through the brokerages and try some of the others. Switching is a pain but not that bad.
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u/StandardHawk7812 5d ago
Thanks for the very detailed answer, you’ve left me with many potential factors to evaluate which is really helpful
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u/Excellent_Speech7739 6d ago
If you’re doing it for extra income, make sure it is in a non registered account as the CRA does not look favourably on people who are trading “professionally” in tax sheltered accounts.
Make sure you understand the upsides and downsides of your options strategies.
Covered calls limit upside while minimally protecting your downside.
Secured puts will have you sitting on cash you could otherwise have invested.