The Options Insider

Is Options House A Bust?

• Options Guy 854 days ago
  Some of you may dismiss this as hearsay, and you may indeed be right. However, a friend of mine that works with Options House tells me that the firm has only signed up about 5000 accounts so far. That is after being in operation for well over a year.
  
  Compare that with OptionsXpress, which does that in about a month, and you'll see what I mean. Needless to say, that doesn't bode well for Options House.
• Thomas 851 days ago
  That actually confirms rumors that I've heard from a few of my friends as well. According to them, OH's new account rate hasn't been anywhere near what they planned.
  
  The few new accounts that they do get are mostly from institutional traders taking advantage of their flat rate commissions. These customers actually cost the firm money, since executing 50 SPX contracts for $10.95 or whatever the flat rate is doesn't exactly generate a profit.
• Jersey Boy 844 days ago
  They have Peak 6 behind them. Peak 6 is a well-known trading firm with PILES of cash to throw at Options House. As long as they are supporting Options House, that firm will never be a bust.
  
  
  In all fairness, I've actually been investigating their institutional platform lately. Their flat rate model is very impressive to a guy like me.
• Athos 833 days ago
  I guess the title of this thread is the operative question. I thought they were doing well. However, all of these threads have me concerned.
• wenzi 804 days ago
  Maybe that is why they rushed the new ONN.tv out the door. I know Peak6 brought in a new CTO from Monster in Jan or Feb, and she had to get ONN done really quickly. Maybe they wanted it to help drive traffic / clients to options house.
  
  Anyway, all of this is just speculation.
• Tic Tac 803 days ago
  Monster?
  
  Is that Options Monster?
  
  Monster.com the recruiting company?
  
  What is monster?
  
  I would think that all of Peak 6's money would make ONN a sure success. Although they are sorely lacking in non-video content.
  
  Maybe they should put some of that cash to work in acquisitions. Hell, they should buy this site! That would make for a heck of a pairing!
  
  I don't know if Mark and his team is looking to sell right now, although he could probaby rake in a pretty penny if he was. A site like must have a demographic that advertisers would kill for.
• wenzi 802 days ago
  My bad. Monster.com
• Simon 676 days ago
  I think the answer is yes.
  
  In fact, the CEO who used to post on this board isn't even at the firm anymore. That's never a good sign. If you want a specialized options broker that has a decently long track record, then you're probably best off with optionsxpress. They've been around about four or five years now. That's an eternity in the options market.
  
  If you don't mind higher commissions and a full-service broker, then you can't go wrong with Schwab. People don't normally think of them in regard to options, but they have a long history in this market. And they aren't going out of business anytime soon.
  
• Thomas 666 days ago
  I heard another rumor the other day that the reason they are white labeling the platform for ScottTrade is because they get to hold the capital for any options accounts at Scottrade. If that's true, it's a pretty damn good deal for Options House. Might be the beginning of a turnaround for them?
• Captain Options 659 days ago
  That sounds like a retarded deal for Scottrade! Why would they do that? Holding the accounts, charging margin, etc, are the true profit centers for brokerage firms. Why would they give that up simply to license an options platform?
  
  You're better off paying a fee for the platform and that's it.
• Tic Tac 654 days ago
  That doesn't make any sense to me either. The accounts, and all of the lending, etc, that goes with them, are the main revenue sources for a broker. Giving that up would be quite silly.
• Monkey Boy 648 days ago
  I call BS on that story. Would OptionsXpress or Think or Swim give away their lending on their accounts? I don't think so. Why would ScotTrade do so?
  
  
  
  
  
• Simon 612 days ago
  I second that. No broker would give away their primary profit engine simply to license a trading platform. Certainly there are other, less onerous, ways to get yourself a software platform.
• Uncle Charlie 555 days ago
  I haven't heard much about Options House. Are they comparable to other options brokers like Think or Swim and OptionsXpress?
  
  Or are they much worse?
  
  Opinions?
• Thomas 465 days ago
  I agree with Jersey Boy's point in the Options Insider Radio thread. George Ruhana had an excellent opportunity to dispel these rumors on Options Insider Radio but he didn't. That makes me think that maybe there is truth to all of these rumors.
• incometrader 443 days ago
  Optionshouse fills are terrible. They don't make their money from the commissions they charge but from trading off the order flow at Peak 6...
  
  You pay $14.95 flat but your fill is much worse than you would have gotten at TOS or OX. In the end that can cost you as much money or more than if you paid higher commissions.
• SForce 443 days ago
  I've been using OH since November and never had a bad fill. Perhaps you can explain to me as to how you can receive a bad fill on an option trade(anywhere) though. The bid/asks are generally pretty solid, you can see how many contracts are waiting to be sold, and volume and price change is generally slow enough that even if you are dumb enough to use a market order, you won't get screwed too hard (plus it's your fault for using a market order). .. I've never bought any stock through OH so I can't speak about those fills, but since you (incorrectly) stated $14.95 per trade you are obviously talking about options (actually it's $9.95).
  
  I was told the same thing, they piggy back on Peak6 connections and get paid for order flow (the same as TOS and OX), they also clear through Penson (the same as TOS, don't know about OX). I fail to see your logic in the claim that your option order fills are SO bad that you incur more cost than you would pay at TOS/OX.
  
  Finally, despite the tone of this post, I don't work for OH, I've just wondered what I was missing that people claim this about brokers in reference to option trades (be it OH/TK/OX/TOS/WHOEVER)
• Delta Trader 442 days ago
  If you are trading 50 contracts and under your executions will pretty much be the same everywhere. Penny pricing has seen to that.
  
  Once you get around 50 contracts and up, the fills tend to vary widely. It depends on your broker's relationships with the exchanges and liquidity providers, their smart router algorithm, payment for order flow, etc.
  
  To tell you the truth I don't trust any of these retail brokers to give me great fills. Instead, I work all of my orders and keep a close eye on them throughout the day. That's the best way to prevent yourself from getting screwed on the execution side. If you use a lot of market orders, or if you just put in a bunch of limits and run out to play golf, then you are asking for trouble wherever you trade.
• incometrader 441 days ago
  SForce, relax...If you take the chip of your shoulder maybe you will learn something...
  
  You are making alot of asumptions. 1st I have never placed a market order to buy or sell and option so your insinuation that I am "dumb" for using a market order is false. The $14.95 is for spread trades not $9.95.
  
  If you think you are getting the same execution for $14.95 on a 100 contract spread than you would get at TOS TK OX etc them I am the one that would question your intelligence...
  
  Without getting into too much detail, I am in a position to see different fills on simultaneous limit price trades at several brokers. The fills at optionshouse (when filled at all) are considerably delayed and when filled at the limit it only because the market moved substantially away giving them enough leeway to get the trade filled.
• SForce 441 days ago
  Well I posted a reply and the system either didn't get it or it is delayed for some reason, (maybe it has to go through OH first which is why it is taking so long to post, right?).
  
  Summary: I made no assumptions and never said you used market orders, I simply provided a possibility as to why someone might see bad fills. Reading comprehension is your friend.
  
  Yes, $14.95 for spreads. You never stated you were talking about spreads though.
  
  Lower price doesn't inevitably mean crappier fills as you eluded to.
  
  Blah blah blah.
  
  I get my fills exactly how I expect them to come through, you didn't. We're not going to convince each other of our belief on this so it's pointless to continue trying.
• incometrader 441 days ago
  I suggest you do your homework...optionhouse is eating your lunch!
• SForce 441 days ago
  I appreciate your genuine, unbiased concern for me in regards to OH, but you're wrong and I suggest you do your homework so you have a clue what you're talking about in the future.
  
  WOO HOO Switch to OX and pay the $1.25 per contract, their system is SO MUCH BETTER that you'll make that $2.50 per contract round trip back on their absoutely amazing execution.
• incometrader 438 days ago
  I am glad you appreciate my concern for you it is truly genuine...
  
  Maybe an intellect as yourself can answer this simple question for me.
  
  If the flat, unbelievably low rates optionshouse offers are really such a bargain, why are they not putting thinkorswim, optionshouse, tradeking etc out of business?? If there is no difference, as you say, in execution then naturally they would have taken so much market share from the others to do some real damage. That has not been the case...not even remotely.
  
  You say "lower price doesn't mean crappier fills". This isn't a case of paying 1.00 vs $1.25 per contract...If they are not making money on commissions, what are they making money on?? They are making money trading off order flow...
  
  If something is too good to believe then it probably is just that, too good to believe...
• SForce 438 days ago
  I do not pretend to know people's reasons for not using or trying OH but all the people that I have referred to it (that used to use TK/OX/Whoever) love it a lot more than their old broker.
  
  Your argument has gone from you having experience with bad fills to an argument of "if the fills are all the same, they should have put everyone else out of business by now". One reason I believe would be that the majority of retail traders aren't running 50 and 100+ lot orders. Why switch from Zecco(puke) or TK when those traders generally aren't doing more than the 10 or so it'd take for the commissions to be worth it. If I was doing only 10 contracts or less, and some (or a lot) of the time less than that, then switching to OH would be completely stupid.
  
  TK/Zecco/TOS ALL get paid for order flow. I'm pretty sure OX and IB do as well although I've never bothered to look.
  
  Additionally, they don't pay as much as the other broker's for their feeds and connections because as you said they piggyback off of Peak6 connections. ..not only that, but because Peak6 has such high volume they get better rates, which OH gets as well(this I did not make up but was told to me by OH reps).
  
  If your only point is that they get paid for order flow (as do 90% of brokers) and "if the executions are the same everyone should use it" then you need to rethink your logic, think a little deeper, and do a little more homework.
• Athos 438 days ago
  The sad truth is that pretty much all brokers accept payment for their order flow. It's just the way the business is done these days. All of them also have preferencing arrangements where they route their orders directly to the accounts of the trading firms that pay them the most. It's the latter that is perhaps the most disturbing, and has also raised many eyebrows about the relationship between Peak 6 and OH.
  
  When OH and ONN launched, they both made a lot of waves about being independent from the Peak 6 mothership. But now that neither of those spinoffs have proven to be profitable, they have all been pulled back within the mothership. Neither OH or ONN is even pretending to be an independent entity anymore. ONN features primarily contributors from Peak 6 and OH and is used to drive customers to OH. OH seems to be moving even closer to Peak 6 by openly leveraging the tech and relationships that were established by that firm. Over the years there have been a lot of questions about how Citadel is making money providing liquidity when most other specialist firms have left the options market. The same question can be asked, to a much smaller degree, with OH and Peak 6. As a trader, I am always looking for every edge that I can find in the market. If I could make a subsidiary that would lose money but give me an advance peak at certain types of order flow, it would be worth it for me. I could lean on that flow all day, essentially providing myself with an insurance policy for my own trading. So the question remains: why is Peak 6 wasting money on OH and other spinoffs if they don't contribute to their core market making/trading business?
  
  This question has dogged OH from day one. In my mind they have never satisfactorily answered it, which is probably one of the reasons why they continue to struggle to attract customers.
• gruhana 372 days ago
  I am the CEO of OptionsHouse, LLC, ("OptionsHouse") and I just wanted to let everyone know that I've been keeping an eye on this thread for quite some time. A lot of the information in here that is just plain old, but there are some other issues I think need to be addressed. This post started well over a year ago, and we have not been around all that long.
  
  Athos has the most recent post to this thread and he is correct in his initial statement: yes, most brokers accept payment for order flow. As far as I know, most, if not all the competitors in the options-centric brokerage space accept this. However, I take exception with his thoughts on directed flow – and especially on the relationship between OptionsHouse and PEAK6 Capital Management LLC (PEAK6 is an affiliate of OptionsHouse through its parent company, PEAK6 Investments, L.P.).
  
  As far as OptionsHouse's relationship with PEAK6 is concerned, I do not understand how a firm that sells its flow has any less of a conflict than one that has a market maker within the same parent organization. I don't mind sharing some of the facts about our relationship with PEAK6 Capital Management:
  
  1. In the first 6 months of 2009, OptionsHouse routed less than 2% of its flow to PEAK6
  
  2. The majority of those routed orders went into exchange sponsored auctions where open bids can be placed and PEAK6 actually executes orders at better prices than NBBO for OH customers.
  
  3. Much of the other 98% of OptionsHouse flow went to some of the same people that provide liquidity to OptionsHouse's competitors
  
  When competitors of OptionsHouse claim we charge low rates because we internalize our flow this implies that we are somehow intentionally disadvantaging our customers. The reality is that our competitors want to avoid answering why we have a better rate structure. The overarching threat many of our competitors see is derived from the fact that we are actually driving down margins much like widespread trading did for stocks more than a decade ago. They would rather disseminate poor information than match our prices.
  
  I would also like to address the assertion regarding our lack of a customer base. We are quite happy with our customer base and current growth – we are gaining market share every day and as we continue to gain traction OptionsHouse will be more aggressive in acquiring customers. Our team is serious about succeeding in the brokerage space.
  
  What I want to make very clear here is that whether you are an OptionsHouse customer or not, we are doing you a huge favor by putting pressure on high margins. Margins in the options brokerage space are still much, much higher than those in the stock business.
  There are so many cases where people pay $1.25 per contract on 100 lots and even bigger trades – this is unsustainable. Put another way, you pay that same commission to hit a market in the QQQQ that may be 500 up and only one penny wide or when you put in a mid-market order on a wider spread. We have some very savvy customers at OptionsHouse who tend not to put in a lot of market orders, and on their limit orders where they control execution price, they are saving a dollar per contract because of our commission structure.
  
  OptionsHouse is doing what a brokerage should be doing with payment for order flow: passing any savings on to its customers. What is wrong with that?
  
  
• elliots11 371 days ago
  Exchange fees for customer orders are often zero (equities)
  That's how OH can charge so little it has nothing to do with order flow payments.
• incometrader 367 days ago
  As Athos correctly asks...
  
  "If I could make a subsidiary that would lose money but give me an advance peak at certain types of order flow, it would be worth it for me. I could lean on that flow all day, essentially providing myself with an insurance policy for my own trading. So the question remains: why is Peak 6 wasting money on OH and other spinoffs if they don't contribute to their core market making/trading business?"
  
  
• Thomas 364 days ago
  I feel sorry for George Ruhana. He's the third or fourth guy that Peak 6 has stuck into the "CEO" chair over at Options House. He has inherited a huge mess, both from a PR and a financial perspective. I think he's doing an admirable job trying to dispel the persistent rumors that continue to dog his firm.
  
  However, negative first impressions are difficult to dispel, especially a year or two after the fact. This is something that Options House should have addressed years ago. Coming out with information on it now, while admirable, may be too little too late.
• ShannonPaul 357 days ago
  I work for PEAK6 Online, the parent company of OptionsHouse and I thought I would to try to answer the questions incometrader and Thomas raise about the relationship between OptionsHouse and PEAK6 and George Ruhana's role at OptionsHouse.
  
  First, it would be illegal for PEAK6 to restrict an order from going to the market, but "lean" on it all day as incometrader suggests. OptionsHouse orders get placed into the market in milliseconds and are publically displayed to all market participants. As George notes above - we have internalized less than 2% of our order flow in the first half of 2009. It is simply not true that we are disadvantaging our customers to help PEAK6's trading business.
  
  PEAK6 has always been interested in experimenting with new technology in an effort to stay on the leading edge, and since many self-directed investors are becoming actively engaged online, it makes sense to be where they are.
  
  Thomas, while you're right to point out that OptionsHouse had two prior CEOs, it doesn't imply the kind of instability that it might at other companies.
  
  While George may still be relatively new to the CEO position at OptionsHouse, he has been with PEAK6 for more than ten years. Former OptionsHouse CEOs, Daniel Rosenthal and John Hass, remain partners at PEAK6 and Daniel currently serves as the CTO over all of PEAK6.
  
  George took on the role of CEO at OptionsHouse because the other partners at PEAK6 felt his depth of trading experience would be an asset to OptionsHouse and its customers. I would be happy to connect you with George so you could ask him yourself, but I work closely with him and I can tell you that he doesn't feel as if he were "stuck" in this role. He's very enthusiastic in his position and none of us working here feel that we've inherited what you describe as a "huge mess" from a financial and PR perspective.
  
  In the past, PEAK6 was very private, catering primarily to institutional traders. PEAK6 has been successful for many years without relying on order flow from OptionsHouse. OptionsHouse does not exist to prop up PEAK6, but rather, the success of PEAK6 gives OptionsHouse a solid foundation in the market. We have access to state of the art data feeds, infrastructure, and the like.
  
  I really hope this helps clear up some of the misconceptions people might have about our company and George's role. If you have any additional questions or concerns, please feel free to reach out to me directly at spaul[at]peak6[dot]com.
  
  
  
  Thank you,
  Shannon Paul
  Communications Manager
  PEAK6 Online / OptionsHouse
  
  
• Delta Trader 343 days ago
  Thanks for the info Shannon. Good to see that Peak 6 is staying on top of the questions from its users.
  
  One quick suggestion. I know that you are a private company and have no obligation to do so, but I think a lot of the questions about your firm would vanish if you released some customer numbers. Just my $.02. Do with it what you will.
  
  
  
• Kid Rock 78 days ago
  It looks like we can see the inner workings of peak 6 and ONN/OH here:
  
  http://dockets.justia.com/docket/court-ilndce/case_no-1:2010cv03901/case_id-244685/
  
  This is the guy that ran ONN. I thought he was doing a good job. Here's the formal complaint:
  
  http://207.41.16.133/rfcViewFile/10cv3901.pdf
  
  Either peak 6 goes after people when they leave or they get rid of them and make sure they can't work anywhere else. Also appears they're not too friendly to employees in the military. I saw in another thread this guy left ONN but didn't know it was this ugly.
• Complete Beginner 73 days ago
  That's a shame. Hate to see these things end up in the courts. I know OptionsXpress went after a lot of employees that left the firm a few years ago. They tried to enforce their non-competes. They failed, but ending up costing their ex-employees a ton in legal bills to defend themselves. It seems like a very petty way to run a business. I hope Peak 6/Options House isn't doing the same thing.
  
  Since Buckley is suing them, it's probably over an unpaid bonus. Peak 6/Options House/ONN has had a lot of turnover lately, so I have to imagine there is a substantial amount of ill will brewing between that firm and its former employees.
• Tic Tac 28 days ago
  I wonder what the outcome of that case was? I'd be very curious, especially now that ONN has essentially gone belly up.
  
  Sometimes I scratch my head over what the hack is going on over at Peak 6. They seem to just dive into new businesses with tons of money but no clue what the heck they are doing. They opened a web video service but apparently had no idea how to do it long-term or make money at it.
  
  They opened a brokerage firm with a clever pricing scheme and some decent tools, but have since fallen way behind the rest of the market. And they seem unwilling, or unable, to spend enough to keep up. The brokerage game is an arms race. If you're not willing to keep up with the big boys, then you shouldn't jump in the deep end of the pool.