Low Cost Options Trading Explained - Strategies for Small Accounts

Low cost options trading gives small accounts a way to trade without tying up too much money. But what counts as cheap option trading, how to find cheap options that actually make sense, and which cheap options trades keep risk under control? This guide explains low cost options clearly.

Low Cost Options Trading Basics

Low cost options trading gives traders a way to enter the market with limited capital while keeping risk under control. Instead of tying up thousands of dollars in stocks, you can use strategies like spreads or the poor man’s covered call to get similar exposure for a fraction of the cost.

Traditional options trading can feel expensive. High capital is needed if you buy 100 shares of stock, margin requirements add more pressure, and option premiums themselves can run high when volatility spikes. That’s why low cost options trading is attractive for small accounts. It lowers the entry cost without forcing you to take on unlimited risk.

Compared to owning shares, low cost options may often create defined-risk positions. This means you generally know in advance the most you can lose, which helps in planning and budgeting trades.

Here’s why traders look for cheap options trades:

• Less capital locked up per position
• Better control of risk with clear profit and loss boundaries
• Flexibility to test different strategies before committing more money

For many retail traders, the key is learning how to find cheap options with enough liquidity and fair pricing. That balance is what makes low cost options practical and effective.

Just a note before we move on: in a professional setting, a low cost (or “cheap”) options trade will generally refer to one with low implied volatility (IV). However, since this article will mainly concern retail traders, we will refer to low cost options trading as those operations that, indeed, will require a low amount of US Dollars to trade.

Cheap Option Trading Strategies

Low cost options trading works best when you focus on strategies that cut the entry cost without removing the chance for profit. One of the most popular is the poor man’s covered call. Instead of buying 100 shares of stock, you buy a long-term call (LEAP) and then sell shorter calls against it. 

This setup lowers the capital needed while still creating steady income potential, and you will get a similar payout compared to that of a classic covered call, which is the one below:

Spreads are another core part of low cost options trading. By pairing a long and short option, you reduce the upfront premium and define your maximum risk. The two most common:

• Bull put spread: profit if the stock stays above the strike, with limited downside
• Bear call spread: profit if the stock stays below the strike, with capped risk

The P&L of these 2 strategies will look as follow:

Both approaches show how to find cheap options trades that fit small accounts. They balance cost, probability, and risk better than buying single options.

Before we move on, a quick note: our Black Friday promotion is now live, which is especially valuable if you’re trading with a smaller account. You can access discounted tools like our trade log, options screener, and maximum-loss filters to help you find and manage low-cost option setups efficiently. You can see the full offer on our Black Friday deals page.

How to Find Cheap Options

Finding good setups is the real challenge in low cost options trading. The first step is to focus on liquid contracts with tight bid-ask spreads. On an options screener like ours, you can set filters for volume, open interest, and a maximum loss cap, for example $500, to avoid oversized risks. Here is an example of our “Max. Loss” filter:

Cheap option trading also depends on market conditions. Implied volatility can make a contract overpriced or cheap relative to historical levels. Watching volatility helps spot when low cost options are worth buying and when spreads might be safer. Time decay is another factor, since short-dated contracts lose value faster.

Useful filters when searching for cheap options trades include:

• Liquidity: high open interest and narrow spreads
• Maximum loss: limited loss relative to account size
• Implied Volatility: avoid overpriced premiums in high-IV setups.

Cheap Options Trades in Practice

A clear way to approach low cost options trading is with spreads that cap both risk and reward. Take this trade, for instance:

Notice that SPY trading at $666.18, and the options will expire in two weeks. You could sell the 669 call for about $5.06 and buy the 677 call for about $2.03. The net credit is $3.03, or $303 per contract.

This low cost options trading setup is a bear call spread. The most you can make is the $303 premium, which you keep if SPY stays below 669 by expiration. The maximum loss is capped at $497, calculated by the 8-point strike width minus the credit received.

Why does this matter? Because cheap options trades are not only about paying a small premium, but about structuring defined-risk positions. Here, you know exactly what you can win and what you can lose before entering.

The Poor Man’s Covered Call Strategy

A standard covered call means buying 100 shares of stock and selling a call against them. For many traders, that upfront cost is too high. The poor man’s covered call fixes this by replacing the stock with a long-term call option (a LEAP). Once you hold the LEAP, you can sell shorter-term calls against it. The payoff looks very much like a covered call but with a much smaller investment.

This setup works well in low cost options trading because it gives steady income potential without needing thousands of dollars in stock. It’s a practical example of cheap option trading that makes sense for smaller accounts.

The trade-off is that short calls bring assignment risk. If the stock jumps, you may need to roll the position. Liquidity also matters, since poor fills on cheap options trades can cut into returns. Learning how to find cheap options with strong open interest is what makes this strategy run smoothly.

Selling Spreads for Low Cost Options

We gave you an example above of a bear call spread, so we sort of spoiled it for you: spreads are one of the main tools in low cost options trading. A credit spread means you sell one option and buy another further out of the money, creating a defined profit and loss profile.

The two most common choices are:

• Bull put spread: sell a higher strike put, buy a lower strike put. You collect a credit and profit if the stock stays above the short strike.
• Bear call spread: sell a lower strike call, buy a higher strike call. You collect a credit and profit if the stock stays below the short strike.

Cheap option trading with spreads is appealing because margin requirements are lower than naked short options. The broker only holds collateral for the strike difference minus the credit received, so small accounts can participate without risking unlimited losses.

There are risks. Assignment can happen if the short leg finishes in the money, and the upside is capped to the initial credit. Still, for traders learning how to find cheap options and build cheap options trades with defined risk, spreads are one of the most practical tools.

Risks of Cheap Option Trading

Low cost options trading can be useful, but cheap does not always mean better. Many low cost options are cheap because they have a low chance of finishing in the money or because they trade with poor liquidity..

Assignment risk is another factor. Short legs in cheap options trades can be exercised early, turning a defined-risk setup into an unexpected stock position. Even with small positions, risk management matters. Focusing on how to find cheap options with liquidity and defined outcomes is what separates smart trades from costly mistakes.