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. When you're ready to start, you can add options trading to your accounts.
What are options and why would I want to trade them?
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.
While options can offer diversification in your portfolio, they’re not appropriate for every customer as they can carry substantial risk. Visit our Learning Center to find several courses on options trading. You may want to start with our introduction to options video.
What do I need to know?
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 option level for the strategy you wish to trade.
Note: If you want to trade option spreads in an approved IRA, you'll also need to complete the Supplemental Options Spread Agreement (PDF).
The options application asks for a snapshot of your current financial situation so be ready to provide your:
- Yearly income
- Options trading experience
- Net worth and liquid net worth
If you prefer, you can download, print, and complete the Options Application (PDF) and, if requesting the ability to trade spreads in an IRA, the Supplemental Options Spread Agreement and send to:
PO Box 770001
Cincinnati, OH 45277-0002
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.S. Mail in 3 to 5 days—based on your delivery preferences. Or call us after 48 hours at 800-343-3548, and we can provide you with your approval information.
Note: You'll need sufficient cash or margin buying power in your account before placing an order.
Frequently asked questions
What are option levels?
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 there's more risk for you and Fidelity. Your financial situation, trading experience, and investment objectives are taken into consideration for approval. If requesting option Level 3 or higher, you’ll also need to apply for margin on your account.
What are the different levels of options trading available at Fidelity?
The option trades allowed for each of the five options trading levels:
* Retirement accounts can be approved to trade spreads. A new options application and a Spreads Agreement must be submitted at the same time and approved prior to placing any spread transaction.
- Level 1 is a covered call writing of equity options.
- Level 2* includes Level 1, plus purchases of calls and puts (equity, index, currency and interest rate index), writing of cash covered puts, and purchases of straddles or combinations (equity, index, currency and interest rate index). Note that customers who are approved to trade option spreads in retirement accounts are considered approved for Level 2.
- Level 3 includes Levels 1 and 2, plus equity spreads and covered put writing.
- Level 4 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.
How do I establish an Options Agreement?
An Options Agreement is part of the Options Application. When you complete the Options Application, you also confirm that you’ve read, understood, and accepted the terms of the Options Agreement. After you log in to Fidelity, on the Margin and OptionsLog In Required page, select Add to complete the Options Application.
Am I authorized to trade options on margin?
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 OptionsLog 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.
What is a multi-leg option?
Multi-leg options are two or more option transactions, or "legs," bought and/or sold simultaneously in order to achieve a certain investment goal. Typically, multi-leg options are traded according to a particular multi-leg options trading strategy.
What are call and put options?
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 price for a specified period of time.
Where can I go to learn more about options trading?
You can access Fidelity's Options Trading Agreement on the About Options Trading page in Fidelity.com's online Brokerage Handbook. Also, Fidelity.com offers comprehensive options educational material in the Learning Center, under Learn About Options and from the Chicago Board of Options Exchange (CBOE).
Margin trading entails greater risk, including, but 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. Margin credit is extended by National Financial Services, Member NYSE, SIPC.
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 significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request.