How to Add Options Trading to Your Account

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Important legal information about the email you will be sending. By using this service, you agree to input your real email address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an email.

All information you provide will be used by Fidelity solely for the purpose of sending the email on your behalf. The subject line of the email you send will be "Fidelity. There's a lot to learn when it comes to trading options, but we have the tools to help give you the confidence to put together a strategy. When you're ready to start, you can add options trading to your accounts. An option is a contract between a buyer and a seller.

When you buy an option, you have a contract that gives you the right not the obligation to purchase or sell an underlying security, such as a stock, at a set price within a specific time frame. When you sell an option, you are obligated to buy or sell the underlying security if the buyer exercises his or her option. If the option isn't exercised or assigned by the expiration date, the contract expires.

Visit our Learning Center to find several courses on options trading. You may want to start with our introduction to options video. There are different ways to trade options, resulting in various types of options strategies. Each strategy bears different risks and has a range of approval levels.

Before you place your order, you'll need to complete an options application, have an options agreement on file, and be approved for the appropriate what is options trading privileges level for the strategy what is options trading privileges wish to trade. The options application asks for a snapshot of your current financial situation so be ready to provide what is options trading privileges.

We'll let you know which option level you're approved to trade—either by email in 1 to 2 days or by U. Mail in 3 to 5 days—based on your delivery preferences. Or call us after 48 hours atand we can provide you with your approval information. You'll need sufficient cash or margin buying power in your account before placing an order.

Options trading strategies involve varying degrees of risk and complexity. Not all strategies are suitable for all investors. There are five levels of options trading approval, and the approval requirements are greater for each additional level since what is options trading privileges more risk for you and Fidelity.

Your financial situation, trading experience, and investment objectives are taken into consideration for approval. An Options Agreement is part of the Options Application. To trade options on margin, you need a Margin Agreement on file with Fidelity. After you log in to Fidelity, you can review the Margin and Options Log In Required page to see if you have an agreement.

If you do not have a Margin Agreement, you must either add margin or use cash. Typically, multi-leg options are traded according to a particular multi-leg options trading strategy. With a call option, the buyer has the right to buy shares of the underlying security at a specified price for a specified time period.

With a put option, the buyer has the right to sell shares of the underlying security at a specified what is options trading privileges for a specified period of time. Margin trading entails greater risk, including, what is options trading privileges not limited to, risk of loss and incurrence of margin interest debt, and is not suitable for all investors.

Please assess your financial circumstances and risk tolerance before trading on margin. There are additional costs associated with option strategies that call for multiple purchases and sales of options, such as spreads, straddles, and collars, as compared with a single option trade. Options trading entails what is options trading privileges risk and is not appropriate what is options trading privileges all investors.

Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks what is options trading privileges Standardized Options.

Supporting documentation for any claims, if applicable, will be furnished upon request. Skip to Main Content. Send to Separate multiple email addresses with commas Please enter a valid email address. Your email address Please enter a valid email address. How to Add Options Trading to Your Account There's a lot to learn when it comes to trading options, but we have the tools to help give you the confidence to put together a strategy.

What do I need to know? The options application asks for a snapshot of your current financial situation so be ready to provide your: What to expect We'll let you know which option level you're approved to trade—either by email in 1 to 2 days or by U. Expand all Collapse all. What are option levels? The option trades allowed for each of the five options trading levels: Level 1 is a covered call writing of equity options. Note that customers who are approved to trade option spreads in retirement accounts are considered approved for Level 2.

Level 3 what is options trading privileges Levels 1 and 2, plus equity spreads and covered put writing. Level what is options trading privileges includes Levels 1, 2, and 3, plus uncovered naked writing of equity options and uncovered writing of straddles or combinations on equities. Level 5 includes Levels 1, 2, 3, and 4, plus uncovered writing of index options, uncovered writing of straddles or combinations on indexes, and index spreads. A new options application and a Spreads Agreement must be submitted at the same time and approved prior to placing any spread transaction.

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Options are derivative contracts that have values based on individual stocks, exchange-traded funds or stock market indexes. Options are short-term contracts with a wide range of different contracts trading against each stock, fund or index. Options can be used to set up conservative investment strategies or aggressive trading strategies.

When an investor or trader opens an account with a stock broker, the account is not authorized for option trading. Adding option trading privileges requires the completion of additional paperwork and disclosures.

The documentation includes details about the investor's previous investment and trading experience. The brokerage firm will add option trading privileges to an account after the paperwork has been reviewed and the broker knows the investor understands the risks of trading options. Option trading authorization can be added to cash, margin and IRA brokerage accounts. When a brokerage account is given options trading privileges, the account is also assigned an options trading authorization level.

Most brokerage firms have five levels of option trading authorization. The levels put a limit on the option trading strategies that can be used in the account. An account at level 1 is only authorized to trade using the most conservative option strategy. An account with level 5 authorization can use any option combination trading strategy.

Novice traders and IRA accounts are usually given level 2 trading authorization. Level 1 allows an account to just make covered call trades. Level 2 adds the ability to buy put or call contracts. These option strategies limit the amount a trader can lose. Level 3 trading adds the additional strategies of cash-secured puts and spread strategies with stock options.

All of the strategies in levels 1 through 3 can be accomplished in a cash or IRA account. They all have limited downside risk to the trader. Level 4 and 5 trading authorization include option trading strategies requiring a margin account. A brokerage margin account allows the trader to borrow money from the broker to pay for a portion of a trade.

Option strategies in these levels expose the trader to large losses if the trade does not work. Strategies included in levels 4 and 5 are naked selling of puts or calls, uncovered straddles or combinations. Level 4 allows these strategies with stock options. Level 5 allows using index options in the same advanced strategies. What Are Options Trading Privileges? Share Share on Facebook.

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