How to Get Approved for Options Trading: Levels and Account Types

To get approved for options trading, you fill out an options application with your brokerage that discloses your income, net worth, investing experience, and objectives, and the firm assigns you an approval level based on what you report. Some brokerages decide in minutes through automated scoring; others take a few business days while a registered options principal reviews your file. The strategies you’re allowed to run depend entirely on the tier you’re granted, and the bar rises with the risk of what you’re asking to trade.1FINRA.org. Regulatory Notice 21-15

What the Application Asks You to Disclose

FINRA Rule 2360 requires every brokerage to perform due diligence before opening an options account. The firm has to collect and consider your investment knowledge, trading experience, age, financial situation, and investment objectives.2FINRA.org. FINRA Rule 2360 – Options Your answers build a risk profile the firm uses to decide which strategies suit you. Inaccurate answers can lead to account restrictions or closure, so treat the form as a financial snapshot rather than a wish list.

Expect the application to ask for:

  • Annual income, covering salary, bonuses, investment income, and any other recurring earnings.
  • Total net worth (everything you own minus what you owe) and liquid net worth (the portion you could convert to cash quickly, like savings and brokerage balances).
  • Years of experience trading stocks, bonds, mutual funds, and options specifically. Most applications also ask how frequently you trade and the typical size of your positions.
  • Your investment objectives, usually chosen from income, growth, speculation, or hedging. Selecting speculation signals comfort with risk and aligns with higher approval levels; selecting income points toward conservative strategies like covered calls.
  • Employment and tax status, which the firm uses alongside your financial data.

A registered options principal reviews the file, or an automated system scores it, and assigns a level. The firm has a legal obligation to determine that options trading is suitable for you given what you’ve disclosed.1FINRA.org. Regulatory Notice 21-15

The Approval Levels and What Each Unlocks

Brokerages use a tiered system to match your experience and finances to the strategies you’re allowed to trade. The exact names and count of tiers vary by firm, but the industry has settled into a fairly standard four-level structure. Each level includes everything below it, so a Level 3 approval covers Levels 1 and 2 as well.

  • Level 1: covered calls and cash-secured puts. The most conservative tier. You sell call options against stock you already own, or sell put options backed by enough cash to buy the shares if assigned. Risk is limited because the underlying asset or cash is already there.
  • Level 2: buying calls and puts. You purchase options contracts to bet on a stock moving up (calls) or down (puts). Your maximum loss is capped at the premium paid, making this a defined-risk level. Most newer traders with some market experience start here.
  • Level 3: spreads. Multi-leg strategies where you buy and sell different options on the same underlying at the same time. Vertical, calendar, and diagonal spreads fall here. Risk can be limited compared to naked positions, but the mechanics take some study.
  • Level 4: uncovered (naked) options. The highest and most restricted tier. You sell calls or puts without owning the underlying stock or holding enough cash to cover assignment. Naked call selling carries theoretically unlimited loss potential, so brokerages require the most experience, the largest accounts, and the highest stated risk tolerance.

FINRA requires each brokerage that lets customers sell uncovered options to establish specific minimum equity requirements for those accounts, though the rule leaves the exact dollar thresholds up to the firm.2FINRA.org. FINRA Rule 2360 – Options In practice, most firms set that floor well into five figures and want several years of demonstrated trading experience.

Cash or Margin Account

Not every options strategy requires a margin account, and this trips up plenty of first-time applicants. Level 1 strategies work in a standard cash account. Covered calls only require you to own the shares, and cash-secured puts only require enough cash to cover the potential purchase.

From Level 2 up, most brokerages require a margin agreement. A margin account lets you borrow against your holdings, which becomes necessary for strategies involving short positions or where settlement mechanics demand it. Federal Reserve Regulation T sets the baseline: brokers can lend up to 50 percent of the purchase price of marginable equity securities.3FINRA. Margin Accounts FINRA Rule 4210 adds requirements beyond Regulation T, including specific rules for options positions.4FINRA.org. FINRA Rule 4210 – Margin Requirements

Read the margin agreement carefully. It spells out interest rates on borrowed funds, maintenance thresholds, and the firm’s right to liquidate your positions if account equity drops too low. Brokerages don’t need your permission to sell your holdings in a margin call. They can act first and notify you after.

The Options Disclosure Document and Knowledge Quiz

Before your brokerage can approve your account or accept your first options order, SEC Rule 9b-1 requires it to deliver a copy of the Options Disclosure Document, commonly called the ODD.5SEC.gov. Options Disclosure Document Prepared jointly by the options exchanges and the Options Clearing Corporation, it covers how options work, the risks, and the tax treatment of common strategies. Most brokerages deliver the ODD electronically during the application and ask you to acknowledge it. Don’t just click through. It covers what happens when options expire in the money, how assignment works, and what corporate actions do to your contracts.

Some brokerages also include a short quiz, especially for Level 2 and above. The questions test core concepts rather than memorized definitions: how time decay erodes an option’s value as expiration approaches, what happens on assignment, and the basic mechanics of the Greeks (delta, gamma, theta, vega). Failing doesn’t permanently disqualify you. Most platforms let you retake the quiz after a waiting period or after completing educational modules the brokerage provides.

If You’re Denied or Approved at a Lower Level Than You Wanted

Getting approved at a lower level than you asked for, or denied entirely, is common. Brokerages are making a judgment call from a snapshot of your finances and experience, and that snapshot can change. Steps that actually move the needle:

  • Update your financial profile. If your income or net worth has grown since you first applied, correct those fields. The scoring weighs financial capacity heavily.
  • Build a track record at your current level. Six months of consistent covered-call or long-option trading demonstrates competence better than any number on a form.
  • Add investment experience where you underreported it. If you’ve traded stocks for years but listed minimal experience, correct that. Firms look at total market experience, not just options.
  • Use paper trading. Many platforms offer simulated options trading, and some brokerages factor that activity into upgrade decisions.
  • Call the options desk. A representative can tell you exactly what the firm needs to see before granting a higher level, which is often more useful than resubmitting a form.

Most brokerages let you reapply after 30 to 90 days or whenever your financial situation materially changes. The point is to genuinely change the inputs the firm scores, not to resubmit the same answers hoping for a different result.