Following my article last month on Covered Call Writing we had a request from a reader to recommend some brokers that offer the services required. I wouldn’t claim to have an in depth knowledge of all the companies in the market place, but I can simply say which companies I use myself. Of course there are other perfectly good companies out there that offer the same service so do look around. A Google search is no doubt the way forward.
I only have experience of one broker for covered call writing – Berkeley Futures Ltd – and I have always found them to be a very professional outfit. Their dealing charges aren’t the cheapest but they are providing a service to use the underlying stock effectively as collateral, which is essential for correct execution of covered writing. Their application process is a fairly typical KYC (Know Your Client) approach. They will assess suitability of new clients, and there is a telephone interview for compliance. The minimum account opening balance is £10,000. They are very experienced in the Covered Writing field. I started using them in the early ‘90s for this.
To just buy options I would use Redmayne-Bentley (Locksbottom branch), which is a traditional stockbroker that I have used for over 25 years. I did try online brokers but I quickly found that I’d save more on price improvements through a traditional broker than just accepting the market quote. If you’re trading covered warrants though, as there is only one market maker (e.g. Soc Gen), there is no chance of improvements on price, so no point paying more than a minimum price for dealing. However, you can’t use online brokers for options in any case. Redmayne-Bentley do UK traded options, and generally if you’re a new client they will only allow you to go long (buy Calls). Simply apply for a normal stock trading account with them. They offer an execution only service.
With both BFL and Redmayne some of the senior staff there are the same people who I traded with 20-odd years ago.
If you want access to a wider range of options then why not trade them in the US? I use Trade Station there, and the platform is excellent for trading analysis tools. You have to go through a paper application process as a non-US citizen. Once approved you need $5,000 in your account to trade options, and they offer a full range of Equity Options in the US. There is a $6/month fee for exchange data and a $100/month service charge which is waived if you trade 50 options contracts or 5,000 shares during the trading month, or if you have a balance on the last trading day of the month of at least $100k in your trading account. Do be aware that the rules there are different to the UK and also make it your business to know your risk, costs and how your money is protected, or not, under US rules. One thing to note is US stocks are sold in lots of 100. Unlike the UK you cannot buy just one share, for example, to attend the AGM. Their website has details of dealing costs and rules and regulations. My suggestion is to assume you know nothing and read them from end to end.
Of course, some spread betting and CFD brokers are offering options based contracts, but be very careful that you know exactly what you’re buying and understand the mechanics of the position. It’s a derivative of a derivative in effect! So any errors of judgement will be magnified…
That’s my personal selection of brokers. Here are their contact details:
Berkeley Futures Ltd: 020 7758 4777
Redmayne-Bentley Stockbrokers: (Locksbottom branch): 01689 818818
Trade Station: 001 954 652 7677