Online Broker Review

Updated Wednesday, July 27, 2011

Options Trading Grade: A

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Note: On June 11, 2009, thinkorswim was acquired by TD Ameritrade. Because of this, as of July 27, 2011, all new accounts must be opened through TD Ameritrade. Existing thinkorswim accounts will soon be transferred from clearing firm Penson Financial Services to TD Ameritrade Clearing, Inc. Existing customers can still trade on the thinkorswim desktop platform for the time being but web and mobile trading must be done on TD Ameritrade platforms. For the purposes of this site, please read our TD Ameritrade reviews as we will no longer be covering thinkorswim.

Overview:

The thinkorswim options trading engine is excellent. The trading interface, like the rest of the thinkorswim application, can be complicated so we recommend it for experienced traders who are technically savvy. Entering new trades from options trading menu or closing out existing positions from the positions menu is well done. Accessing option charts from the trading menus is only a click away. Canceling and modifying open positions is well done. Trade confirmations include transaction time down to the second. Option order types available are extensive, so those utilizing complex trading strategies will really appreciate the thinkorswim trading engine.

Option Order Types:

Single (one option leg) - Buy/sell a single put/call
Vertical (two option legs) - Buy/sell a pair of puts or buy/sell a pair of calls with varying strikes
Back/Ratio (two option legs) - A vertical with unequal quantities
Calendar (two option legs) - Buy/sell a pair of puts or a pair of calls with varying expiration
Diagonal (two option legs) - Buy/sell a pair of puts or a pair of calls with varying strikes and expiration
Straddle (two option legs) - Buy/sell a put and call with matching strikes and expiration
Strangle (two option legs) - Buy/sell a put and call with matching strikes and varying expiration
Covered Stock (stock + one option leg) - Buy/short stock while buying/selling an option
Collar/Synthetic Combo (two option legs) - Buy a put option and sell a call option or sell a call and buy a put
Butterfly (four option legs) - Buy an option with one strike price, buy an option with a second strike price, and sell two options with a third strike price that is midway between the prices of the first two options
Condor (four option legs) - Buy two options and sell two options. All options are either puts or calls.
Iron Condor (four option legs) - Buy/sell two puts and buy/sell two calls
Vertical Roll (four option legs) - Buy two options and sell two options. All options are either puts or calls. This is used to lock in value from a previously initiated vertical trade.
Collar with Stock (stock + two option legs) - Either (1) Buy a put option, sell a call option and short the corresponding stock or (2) sell a call, buy a put and buy the corresponding stock
Double Diagonal - Double Diagonal (four option legs) - A pair of diagonals
Double Diagonal - Double Calendar (four option legs) - A pair of calendars
Double Diagonal - Straddle/Strangle Swap (four option legs) - Sell a front month straddle and buy a back month strangle
Unbalanced Butterfly (four option legs) - A butterfly with an unequal number of contracts for those options with farthest apart strikes
Unbalanced Condor (four option legs) - A condor with an unequal number of contracts bought/sold in aggregrate
Unbalanced Iron Condor (four option legs) - An iron condor with an unequal number of contracts bought/sold in aggregrate
Unbalanced Vertical Roll (four option legs) - A vertical roll with an unequal number of contracts bought/sold in aggregrate

Details:

From within the thinkorswim desktop application, I selected the trade tab. In the top text box I entered the underlying stock symbol I was interested in trading - GE (General Electric) - and pressed enter (click on images for larger views):

This generated a list of option expiration months. I clicked on the arrow next to the December 2009 listing to expand that menu. This brought up a limited selection of contracts listed by strike price, with calls on the left side and puts on the right side. Before deciding which contract I wanted to buy, I decided to check a price chart for a specific contract. To do this, I right clicked on the contract and selected TOS chart:

Going back to the trading tab, I decided to buy a put with a strike price of 16 so I clicked on the ask price in the appropriate row. This populated the order entry menu at the bottom of the screen:

I modified the default field values to purchase 1 contract, set the limit price to $1.90 and selected to confirm and send my order.

This brought up an order confirmation dialogue box. I selected to send the order:

This automatically displays the order book, showing the newly entered trade with a status of WORKING:

From the order book menu, orders can be canceled or replaced by new orders. Either action instantly updates the order book menu.

I decided to let me trade go through, When the market opened the following day, my trade was executed. The newly created position immediately showed up in my position window. I decided to close out my position so I clicked on the blue dot next to my position and selected to create a closing order:

This brought up the order entry menu with all of the fields auto populated. This is a very slick interface.

thinkorswim Options Trading