Effect of Commissions

In my previous post, I gave the details of a recent covered call trade. If you add up the commissions for a called covered call trade, the total commission for a 100 share/1 option trade is $15.50.

To diversify my account I am making trades in the $1000-$1200 range, to give me up to 4 open positions at any one time. This makes the commissions approximately 1.5% of of each round trip trade. If I average trading the portfolio 9 times a year (50% one month trades & 50% two month trades), my total commission costs are 13.5% of the portfolio value.

Obviously it is important to figure all trades net of commissions to see if the profitability is acceptable. A 3% raw gain reduced by half becomes unacceptable.

If a stock is not called and I can write another call on the same stock the cost for that round trip is reduced by 1/2%.

The biggest thing I can do to reduce the negative effect of commissions is to trade in larger dollar amounts. Trades in the $2000 range reduce the commission drag on gains by half. So as my account grows, the results should improve just by the lower percentage that will be taken by commissions.

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One Response to “Effect of Commissions”

  1. Houyhnhnm Says:

    I think you’d save a lot of money at Interactive Brokers. Stock trades start at $1 each, and option trades are very cheap. Also, they are making a secondary market in options that allows clients to bid in penny increments. I’ve used them for years and been happy, though it is Spartan in some ways. http://www.interactivebrokers.com


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