# Transaction costs on option trades

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?

• You wrote "SPX options have ~20x less commissions than SPY options per unit of risk". I don't think that is right. What assumptions did you make? – noob2 Jun 3 '15 at 15:00
• My mistake -- more like 10x less commissions, as the SPX index value is ~10x SPY's value and commissions are charged per contract. Edited. – yong Jun 3 '15 at 15:15