FAQs: How to Add Options Trading to Your Account
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.