What dictates the costs of creating an options contract? (Commissions breakdown)

Question

What are the exact components of options commissions? In other asset classes like stocks, I can clearly see the evolution of regulatory changes that allowed businesses to compete on the price of commissions, and the floor in pricing for stock trades is very very low, which can be seen by the clearing firm's costs and what the exchanges charge per share, coupled with fees to the regulator.

With options, there seems to be a floor across the industry at around $.30 per contract. Where brokers charge different premiums that allow them to on average make a profit from options trades. I am unclear on what circumstances perpetuate these base costs.

My observation is that the underlying asset in options can be acquired cheaply, with the most expensive underlying being 100 shares of stock. (Compared to futures options, and cash settled options, as examples)

Is there some other "origination fee"? Some regulatory fee between SROs, the Options Clearing Corporation and governmental regulators? Expensive older technology keeping the costs high? A monopoly somewhere? All of the above?

I've never seen this question asked before and I think it will give a lot of insight into the market when researched and answered

(The most similar question has OP believing that $1.50 a contract is too good to be true, so it is very unrelated)

Answer 1

I'm not positive my answer is complete, but from information on my broker's website, the following fees apply to a US option trade (which I assume you're concerned with given fee in dollars and the mention of the Options Clearing Corporation):

• Brokerage-charged commissions -- amount varies by broker.
• Exchange option fees (charged by AMEX, BATS, BOX, C2, CBOE, EDGX, GEMINI, ISE, MERCURY, MIAX, NASDAQOM, NASDAQ OMX BX Options Exchange, NYSE Arca (PSE), and PHLX to list some in the US) -- the amount and structure varies pretty widely it seems.
• US Regulatory fees (ORF = Options Regulatory Fee) - $0.0407 / contract
• US Transaction fees (FINRA Trading Activity Fee) -- $0.002 * quantity sold
• US Transaction fees (per sell order only) -- $0.0000218 * value of aggregate sales
• US OCC Clearing fees (1 to 1,370 contracts) -- $0.041 / contract
• US OCC Clearing fees (>1,370 contracts) -- $55 / trade

They have more detail for other countries -- see https://www.interactivebrokers.co.uk/en/index.php?f=commission&p=options1 for North America. Use the sub-menu near the top of the page to pick Europe or Asia.

The brokerage-charged commission for this broker is as low as $0.25 per contract with a $1.00 minimum. Though I've been charged less than $1 to STO an options position, as well as less than $1 to BTC an options position, so not sure about that minimum.

Regarding what I read as your overall underlying question (why are option fees so high), in my research this broker has one of the cheapest commission rates on options I've ever seen. When I participate in certain discussions, I'm routinely told that these fees are unbelievable and that $5.95, $7.95, or even $9.95 are considered low fees. I've heard this so much, and discussed commissions with enough people who've refused to switch brokers, that I conclude there just isn't enough competition to drive prices lower. If most people won't switch brokers to go from $9.95 to $1 per trade, there simply isn't a reason to lower rates.