You’ve read about stock options. You understand how they can help you multiply your returns, generate cash, and reduce risk. Now you’re ready to take the plunge.
Excellent! Let’s do this!
Before you can begin, however, you’ll need to request options privileges in your brokerage account. You’ll also need to apply for the correct permission level.
I’ll show you how to do that in this final guide in my series on on how to multiply your profits with stock options, geared toward beginners.
Table of Contents
- Which Type of Broker Should You Choose for Your Options Trading Account?
- Which Level of Option Trading Do You Need?
- Getting Options Trading Approval in Your Account
- Don’t Sell Yourself Short When You Apply!
- You Don’t Have to Trade Alone!
Which Type of Broker Should You Choose for Your Options Trading Account?
The first thing you’ll need is a brokerage account. I recommend choosing a discount broker because you’ll save significant money on commissions and fees.
You also don’t need the handholding that full-service brokerages offer. There are plenty of free or low-cost resources available to help you learn how to trade options. Shameless plug alert: Begin by checking out the previous 3 guides in this series.
I personally trade options on TD Ameritrade (which is now becoming part of Charles Schwab) and tastyworks. Schwab/TD Ameritrade’s thinkorswim platform is the best for research while Tastyworks has an easy user interface. Other discount brokers include E*Trade and Interactive Brokers.
You can open an account with any of the above brokers in minutes. Then, you’ll just need to apply for options trading approval.
Which Level of Option Trading Do You Need?
Options strategies can range from conservative to speculative. At The Antagonist, we don’t take wild risks.
Before we enter a trade, we know how much we can gain or lose. Moreover, we often employ strategies that cap our losses, and many of our trades risk less than $100. Brokers appreciate this controlled-risk approach, which makes getting options approval easy.
Discount brokers typically have 3-5 levels of options approval. Here are TD Ameritrade’s levels (as of February 19, 2023):
| Trading Level | Cash Accounts | Margin Accounts |
|---|---|---|
| Level 1: Covered | – Write covered calls – Write cash-secured puts | – Write covered calls – Write cash-secured puts – Write covered puts |
| Level 2: Standard | – Write covered calls – Write cash-secured puts – Purchase calls and puts | – Write covered calls – Write cash-secured puts – Write covered puts – Purchase calls and puts – Trade qualified spreads |
| Level 3: Advanced (Requires Margin) | – Write covered calls – Write cash-secured puts – Write covered puts – Purchase calls and puts – Trade qualified spreads – Write uncovered calls and puts |
(Here are tastyworks’ levels of options trading.)
To have a robust set of options strategies that work in any type of market, I recommend that you apply for Level 3 or the equivalent at your broker.
Getting Options Trading Approval in Your Account
When you apply for options trading, your broker’s application form will ask you some or all of the following questions:
- Years of investment and options experience
- Level of investment and options knowledge
- Annual income
- Net worth
- Liquid net worth
- Employment status
- Number of trades you plan to make per month or year
- Funds available for trading
- Source of funds available
The first two bullet points are the most important. Brokers want to assess your competency. Don’t worry. If you have some trading experience and foundational investment knowledge, you should get approved for all three levels without a problem.
Different brokers emphasize different questions, however, so it’s worth doing a few internet searches to see what your broker of choice is looking for.
Don’t Sell Yourself Short When You Apply!
Your broker simply wants to know one thing: do you know what you’re doing?
Before you answer that question, realize that “expertise” is a relative term.
Expertise is a relative term. If you consider yourself a beginner, work through the previous guides in this series. Once you do that, you’ll know more about options than the overwhelming majority of retail investors.
Moreover, if you read The Antagonist and any other investing and options resources, it’s like having a team of experienced traders guiding you. That’s decades worth of experience in your corner.
The options approval process is usually very fast. For example, TD Ameritrade and tastyworks let you know instantly.
You Don’t Have to Trade Alone!
After you’re approved to trade options, you don’t have to go it alone! Become a member of The Antagonist and you’ll get access to…
- Stock and options recommendations
- Trade alerts
- Model portfolios for various investing styles and risk tolerances
- Member-only chats
Click here to become a member.
Good investing,
Jason Milton