When trying to choose between different investment platforms, it is important to consider all the options you have available.
Despite the play on words, access to options as a financial instrument is a big deal for a lot of investors.
Options contracts offer a different way to trade based on stock market movements. The ability to trade them is not something that every investment platform offers.
Today we are going to be diving into the Webull investing platform and their offering when it comes to trading options. This is a newer service from them that they have been beta testing over the past year.
Most people are familiar with the free trading app Robinhood and they also offer free options trading. So, how does Webull stack up in the world of options?
Summary
Trading options is not for everyone, and you should do your research regarding whether or not it is right for you. It is important to understand that options are leveraged. They can be extremely risky if you do not understand how they work.
If you are going to trade options and are looking for a free platform to do it on, Webull offers an excellent service.
Webull offers a great suite of international-scale technology for you to analyze potential investments, including options.
Zero commissions, as well as no contract fees, make it even easier for you to complete your trades without incurring unnecessary costs. They even give you some complimentary real-time quoting information from OPRA.
Webull also offers different tiers of options trading. This could prevent newcomers from getting in over their heads when just starting out.
Pros
Cons
Webull is a commission-free trading platform launched in 2018. They offer a “completely free” system to their user base that has grown to over 11 million strong.
Webull does offer a desktop or web application, but they lean more towards their mobile app as their primary interface.
Webull is more commonly used by experienced investors who want a lot of tools and analytics to look at while they are investing. However, it is not overly complicated so with some learning a beginner would be able to navigate the system fairly well.
Stock options give an investor the right to purchase or sell a security at a specific price.
Options are considered derivative securities because they derive their value from an underlying asset. There is a lot that goes into options trading, but we’ll go over the basics of what options are so you can have a better understanding of what Webull offers.
Options trading involves a significant amount of risk and should only be pursued by experienced traders. There is the potential for large gains and large losses for investors that don't understand what they are doing.
Basically, options offer investors a right to purchase or sell a stock for a predetermined amount at a set date. Some investors use them to make speculative bets as to what they think a stock is going to do in the future.
There are two basic types of stock options; calls and puts.
Give you the right to purchase a security at a specific price. This means that you bet that a stock will rise above a specified price by a certain date.
If you buy a call and the stock price goes above the "strike price" you will be "in the money".
Give you the right to sell a security at a specific price. If you purchase a put option you bet a stock is going to fall below a certain price by a particular date.
Since options contracts are leveraged, it makes it easier for investors to get in on stock movement without putting in as much capital as buying the stocks outright.
Let’s use an example of a call option here to clarify.
Say you have been watching stock X and you believe it is going to go up sometime in the next 3 months.
You could buy a call option on stock X instead of buying up stock X outright.
Let’s say the predetermined price of the stock, called a strike price, is $100 and the contract is set to expire in 3 months. For example's sake, let's say the call option cost $5 to purchase.
In the next 3 months, you have the right to buy company X stock at $100 regardless of the stock’s current market value.
Assume for a moment that the stock price rises to $125 before your contract expires.
During that time, you will be able to buy the stock for the strike price set at $100. Obviously, doing this will earn you a profit of $20. You will be able to buy the stock for $25 cheaper than it costs, but you paid $5 for the options contract.
But, if the price goes down, all that you have lost is the $5 cost of the contract. This is called a premium. If you had just bought shares of company X instead, you would have had an unrealized loss until you go to sell the stock.
There are pros and cons to investing with options instead of buying stocks outright, and if you are new to them you should definitely do your research first.
Trading options with Webull is pretty simple.
First, you have to create an account on the platform.
This process takes only a matter of minutes with nothing more than your phone and your basic info.
Once you have an account, you have to activate the ability to trade options.
During activation, they will ask you a few questions such as your investing experience, and will give you a level 1-6. Your level will determine which option trading strategies Webull will allow you to use.
Here is a list of the levels and what they will allow you to do:
They will send you an email with your level and all the details once you have completed the activation.
After you finish up with this, you will be able to use the options tab when you look at a stock you want to invest in.
Clicking on this tab will allow you to see a window with all the options that are available for this stock. These are called options chains.
If you have a lower level of access you, will still see options that you will not be able to place orders for.
If you have gotten a lower tier of options level, then you can apply for an update if you believe this is a mistake. You can also utilize this feature if you end up getting more experienced with investing in options.
Applying for an options update means Webull will reevaluate your experience level. This will give you the opportunity to move up in the ranks in regards to what options strategies that are available to you on their platform.
However, just because you have access to certain strategies doesn't mean you have to use them. Writing naked calls and puts can be particularly dangerous and presents the potential for significant losses.
When making an options trade on Webull, there are a number of decisions you need to make about your position.
You'll need to decide whether you are buying or selling, whether you are looking at a put or a call, along with a number of other factors.
The strike price is the defined price that will apply for the options contract.
If you buy a call option with a strike price of $10, you will be "in the money" once the underlying stock price goes above $10.
If you buy a put option with a strike price of $10, you will be "in the money" once the underlying stock price falls below $10.
In general, options contracts with strike prices far away from the current stock price will cost less to buy. That's because there's a lower likelihood that the stock price will cross the strike price.
Options contracts on stocks that are more volatile tend to be more expensive. That's because there's a higher chance of the stock price crossing the strike price.
All good things come to an end and the same is true for options contracts. All options will have an expiration date after which point they expire worthless.
Options on the Webull platform will trade through Friday and expire on Saturday.
Generally, options that expire sooner will be cheaper since there is a lower likelihood of the stock price crossing the strike price over a shorter timeframe.
Webull offers a few different features to make it easier to begin trading options on its platform.
Just like the rest of the Webull platform, they will not be charging any commissions when buying and selling your options.
Some brokerages charge you a fee for your options contracts. This is not the case with Webull as they will offer your contracts to you completely free of any fees.
This, of course, does not mean the contract is free. This simply means that Webull won’t charge an extra fee for facilitating the contract for you.
When you activate your account to trade options with Webull, you will get a few notifications and emails from them. One is thanking you for signing up for this feature and giving you OPRA Real-Time Quotes for 30 days.
The Options Price Reporting Authority (OPRA) “disseminates consolidated last sale and quotation information originating from the national securities exchanges that have been approved by the Securities and Exchange Commission to provide markets for the listing and trading of exchange-traded securities options”
In order to keep this feature, you must complete one option trade every 30 days from the time your complimentary quote period is set to expire.
Trading options gives you an added amount of flexibility when it comes to investing.
Webull offers access to a bit of that flexibility right out of the gate with level 1.
If you believe that a stock you own is going to hold steady, then you may decide to sell a call option. This is also known as writing a call option.
By doing this, you give the buyer the opportunity to buy the stock at the predetermined price.
If the price holds steady, the buyer will not exercise the option and you will keep the cash you got from selling the option as well as the underlying stock.
If the price increases, you may be forced to sell to the buyer at a lower price.
This is something that is available for you to do with the first level of the Webull options trading tier system.
You will only be able to write covered calls, which means you own the obligated shares of the underlying security. You will be able to utilize this option in order to gain more experience and level up in their system.
Trading options is not for everyone, and you should do your research regarding whether or not it is right for you. It is important to understand that options are leveraged. They can be extremely risky if you do not understand how they work.
If you are going to trade options and are looking for a free platform to do it on, Webull offers an excellent service without any of the fees you're likely to find elsewhere.
Webull offers a great suite of international-scale technology for you to analyze potential investments, including options.
Zero commissions, as well as no contract fees, make it even easier for you to complete your trades without incurring unnecessary costs. They even give you some complimentary real-time quoting information from OPRA.
Webull also offers different tiers of options trading. This could prevent newcomers from getting in over their heads when just starting out.
If you're going to get into options, we think that Webull is a great place to get started. The comprehensive tools and dashboards make the platform attractive for traders of all experience and skill levels.
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