First, online brokers threw equity trading into a flummox with their dirt-cheap trading prices. Now, two online brokers are taking aim at the options industry, and their moves could mark the first days of a price war.


(AMTD) - Get Report

said Thursday it would cut its base commission on online options purchases by about two-thirds to $8 from $25. The $1.75 fee per option contract remains unchanged. The news comes just days after

Datek Online

rolled out options trading priced at $9.99 plus $1.75 per contract. Datek had soft-launched the product for some customers earlier this month, but Monday began letting new customers buy and sell traditional options like calls and puts as well.

Datek spokesman Mike Dunn said the broker is offering options because demand from individual investors has picked up. Meanwhile, Ameritrade says it's able to lower prices now because its investment in technology this past year has lowered costs. And keeping costs low is what Ameritrade and Datek are all about. For instance, while other brokers have expanded services, Ameritrade has remained focused on low commissions and trading.

Ameritrade's price cut is "consistent with what they want to be, which is the low-cost provider of executions," says Russell Keene, an analyst at

Keefe Bruyette & Woods

, which hasn't done any underwriting for Ameritrade.

Ameritrade is at the bottom of the commission chart for stocks with its offer of $8 per online trade on market orders, or orders at the market price. Datek isn't far from Ameritrade, charging $9.99 per stock trade. Along with other online brokers like



, Ameritrade and Datek were key players in driving down the cost of equity commissions as they started using the Internet for transactions in the mid-to-late 1990s.

Equities make up the bulk of Ameritrade's business, with options accounting for less than 10% of commission revenue on average. Whether Ameritrade is able to drive traffic to options with the new pricing, and perhaps create a price war, remains to be seen, particularly given other cost-cutting changes in the options market's structure. (

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wrote about the possibility of falling online options commissions in May.)

TD Waterhouse


, another online brokerage firm with competitive prices, charges $30 plus $1.25 a contract. A TD Waterhouse spokeswoman said the company had no immediate plans to change its pricing but added that it's always reviewing its commission structure. E*Trade and

National Discount Brokers


, two other online firms with similar pricing, weren't immediately available to comment.

The options market is going through some major changes, including a new all-electronic exchange, lower floor trading fees and diminished payments from market makers to the brokers that send them orders, all of which have cut trading costs.

Ameritrade brokerage President Jack McDonnell conceded that Ameritrade is receiving payments from the market makers that execute its option trades, where six months ago there were no payments.

"Because market makers are competing for order flow, they have chosen to share some of the economics of the trade with us in terms of payment for order flow," McDonnell said. But he said that aggressive competition for orders also has meant better executions and prices.

Those are two important points because the

Securities and Exchange Commission

has been concerned about how payment for order flow might affect execution in both the options and equities markets. Still, the agency has so far stopped short of striking down the practice altogether.

Staff Reporter Brian Louis contributed to this story.