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Written by Beau Jordan on March 26, 2022
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TD Ameritrade Options Review 2022: Is Thinkorswim Legit?

Options trading is a financial instrument that can be traced back hundreds of years. Unlike today though, options trading was not an investment tool used by the common investor. 

Traditionally, options and futures trading were reserved for farmers. The farmers would use these financial instruments to speculate upcoming harvests of different goods. 

Today, stock options are a great way for an investor to aggressively play the price movement of a stock. Options trading is not for everyone though as there is a significant amount of risk. Beginner investors are often encouraged to stay away from options until better understanding the equity markets. 

Investors who have an appetite for risk, have found that the search for the perfect options trading platform is difficult. There are several platforms that offer a great options trading experience while others don’t offer options trading at all. 

While TD Ameritrade is not as beginner friendly as other platforms (i.e. Robinhood), this options trading platform has become extremely popular in the options trading community. 

This article will highlight key options trading terminology as well as a dive into the TD Ameritrade options trading platform called thinkorswim.  

What Are Options?

Unlike traditional stocks, options trading is considered a zero-sum game. Options are an agreement between two parties. When one party loses, the other party wins. Wealth is then transferred from one party to the other. Zero-sum games mean that both parties cannot win. 

Purchasing and selling options is far more complex than purchasing and selling stock. This article won’t detail out all options trading strategies but will cover a few of the main principles. 

Options give the investor the choice, but not obligation, to sell or buy a security at a predetermined price (strike price) on a predetermined date (expiration date).  

The two most basic options contract categories are puts and calls. Investors have the ability to buy or sell puts and calls. 

options trading

Since the sale of options can be extremely complex, this article will focus only on the purchasing of option contracts. 

Purchasing a call allows the investor to buy a security at a predetermined price (strike price). Investors will purchase calls when they believe that the security will gain value on or before a predetermined date (expiration date). 

Purchasing a put allows the investor to sell a security at a predetermined price (strike price). Investors will purchase puts when they believe that the security will lose value on or before a predetermined date (expiration date). 

Option Trading Examples

Since options trading is extremely complex, the below examples are just introductory examples. Before getting into options trading, make sure that you truly understand what each investment represents and how options work. 

Purchasing A Call Option

Typically, an option contract involves 100 shares or more. Suppose an investor believes that stock ABC will increase in price over the next 6 weeks. The price currently sits at $10 a share.

The investor purchases a call option on stock ABC for $0.22 at a strike price of $11. This means that the investor makes money off the option if the stock price rises to higher than $11.22. 

However, if stock ABC fails to get above $11.22 in the next 6 weeks, the investor can choose not to execute the option (since execution would result in greater losses). In this case the investor would lose the entire option premium which is $0.22 x 100 (remember the contract involves 100 shares) = $22. 

Purchasing A Put Option

Now, suppose an investor believes that stock ABC will decrease in price over the next 6 weeks. The price currently sits at $10 a share.

The investor purchases a put option on stock ABC for $0.22 at a strike price of $9. This means that the investor makes money off the option if the stock price drops to lower than $8.78. 

However, if stock ABC fails to get below $8.78 in the next 6 weeks, the investor can choose not to execute the option (since execution would result in greater losses). In this case the investor would lose the entire option premium which is $0.22 x 100 (remember the contract involves 100 shares) = $22. 

TD Ameritrade's Thinkorswim Trading Platform

td logo

In January of 2009, TD Ameritrade acquired Thinkorswim Group. This acquisition has since set TD Ameritrade apart as a premium options trading platform. 

The thinkorswim trading platform is lined with innovative tools and features for the everyday investor. These tools allow the investor to make quicker, smarter, and more informed trading decisions. 

The thinkorswim trading platform is offered in three different variations: web, desktop, and mobile. Each of these offerings provide the investor with optimized trading at any location and at any time. 

Thinkorswim Features

While the web, desktop, and mobile platforms have unique features, all are unified in the goal to best serve TD Ameritrade’s customers. 

To find the complete difference between the thinkorswim platforms, head to the TD Ameritrade official website

Thinkorswim Pros

TD Ameritrade offers free access to all trading platforms. There are no account minimums, no account fees, and no trading requirements. This enables investors to invest when and how they want. 

For those who are hoping to practice options trading before jumping in full steam, thinkorswim has a solution. Investors have the ability to invest with paper money. This money holds no monetary value but allows you to practice strategies without having to risk real funds.

TD ameritrade platforms

Coupled with paper trading, the thinkorswim platform provides views into both historical and current market data. This allows an investor to analyze both successful and unsuccessful trades.

World renowned option traders advise that one of the best ways to learn and improve in trading is to analyze both the successful and unsuccessful trades.

Another free tool provided on the thinkorswim platform is access to real-time level II quotes and streaming quotes. This free benefit is only available to non-professional traders (i.e. the average investor) though. 

Possibly the greatest feature of the thinkorswim platform is its customizability. Investors are not stuck to one view, one chart, one drawing tool, or one order type. Rather, thinkorswim is quite the opposite. 

Below is a list of top attributes found within the thinkorswim platform that demonstrate its customizability. 

  • Over 400,000 economic indicators that come directly from the FED
  • More than 400 technical studies and 20 different drawing tools
  • List of predetermined custom alerts or customizable alerts using a powerful array of parameters
  • Options statistics to quickly compare average volume and volatility
  • Advanced order options like trailing stop to compliment typical market orders 

Lastly, investors have 24/7 access to thinkorswim lessons that are posted on the TD Ameritrade and thinkorswim learning center websites. This includes webinars, Q&A sessions, and a plethora of pre-recorded videos. Each of these allow the investor to fully utilize all of the tools and points described above. 

Thinkorswim Cons

As with any trading platform, there are cons to consider when deciding who to trade with. The first major con is the complexity of the platform. 

While the customization of visuals, alerts, and data is often preferred by the advanced trader, a beginner trader may quickly become overwhelmed. Even the advanced trader will need to spend the energy to learn how the platform works before jumping in. 

The second con of trading options on the thinkorswim platform is the price per contract. Since the growth of platforms like Robinhood, investors have become accustomed to 100% free trading. 

While TD Ameritrade does offer commission free trading for stocks and options, options do carry a $0.65 contract fee. This means that every contract you enter into will cost $0.65 and if you exit the position early it will cost another $0.65. However, there is no assignment or exercise fee for all options.  

Trading Options on TD Ameritrade's Thinkorswim: Final Thoughts

Options trading is an exciting way to invest in the 21st century. Remember that with the great potential of gains though, there is an equal potential for loss. 

For example, options trading has a far greater risk of losing your entire investment (and more if you use margin trading) than investing in ETFs that track the S&P 500. Just make sure that your investment decisions align with your risk appetite and that you never invest more in options than you are willing to lose. 

If you do decide to trade options, hopefully it has become apparent why many investors prefer the thinkorswim trading platform. Also, keep in mind that the platform is less beginner-friendly and that there are fees for every contract. 

To help offset the platform complexities, TD Ameritrade has provided hundreds of unique tools and training courses to help you fully utilize the thinkorswim platform. If this article has sparked your interest in the platform, create an account, trade using paper money, and see if it is right for you!

Article written by Beau Jordan

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