It looks like the commissions alone for a non-index option trade is around 2-5%. For example, a BAC June ATM Call is currently trading at \$0.20; Interactive Brokers charges $0.7 per contract, which means that the commission alone is 3.5% of the value of the option! If one were to trade a more complicated strategy such as an Iron Condor to limit risk, the commission will go up even further. Yet BAC is the second most traded single-stock option! But why would anyone trade it?
Similarly, SPX options have ~10x less commissions than SPY options per unit of risk, so why trade SPY options? I'm also puzzled by the lack of index options on things like gold. (Only a month ago did index options on non-US indices launch). Do investors primarily "buy-and-hold" options using strategies like call-writing?
It seems that any sort of "clever" strategy that trades volatility as an asset class faces incredible transaction costs. Is it simply not done?