A commission is paid on both the entry and the exit of an options position and is added to the total cost or deducted from the proceeds of the trade. In the event an option expires worthless, only entry commissions are paid.
Commissions vary widely by brokerage firm and can be adjusted by factors such as account size, account activity, and trading method. They are generally calculated based upon the premium of the option and the number of contracts traded, although some firms calculate commission based purely on the dollar value of the transaction. For example, a broker may charge a minimum commission of $32, plus $4 for every contract traded. An order for ten contracts would then cost $72. As in the case of stocks, the commission rate (as a percentage of the total cost of the trade) will generally decline as the total dollar amount or the number of contracts increases. Spreads, straddles, buy / writes, and other orders are generally charged two commissions, one for each side of the trade.
With the explosive growth of the deep-discount firms and options specialized firms, the level of commissions available to options traders has ratcheted downward, which is a very welcome development in an area of investing where trading frequency is generally quite high.