Setup · 11 min read

Getting Approved for Options Trading at Your Broker

Options approval levels, broker-by-broker walkthroughs, and the answers that get you approved on the first try.

The options approval levels

Every U.S. brokerage tiers options trading into levels. Naming varies slightly across brokers, but the structure is consistent:

• Level 1 — Covered calls and cash-secured puts on stocks you already own cash to back. At some brokers this is split into “Covered Calls” only, with CSPs requiring Level 2. At most modern brokers, both fall into the same level.
• Level 2 — Long calls, long puts, plus covered calls and cash-secured puts. This is the most common retail level. Directional single-leg trades without spread exposure.
• Level 3 — Spreads. Vertical spreads, iron condors, iron butterflies, collars, calendar spreads. Defined-risk multi-leg strategies. This is where iron condors live.
• Level 4 — Naked / uncovered options.Writing calls or puts without the underlying shares or the cash to cover the strike. Potentially unlimited downside. Most retail investors never need this level.

For Value Options Letter strategies specifically, you need Level 2 at minimum and Level 3 if you want to follow our iron condor trades. Apply for Level 3 out of the gate — it doesn’t cost anything extra, and it gives you the flexibility to execute any idea we publish.

The application process

When you apply for options approval (either at account opening or later via a settings screen), you’ll be asked 8-12 questions. The specifics vary by broker, but the categories are consistent:

• Investment experience: years of experience with stocks, options, futures, forex, etc.
• Income: annual household income range
• Net worth: total and liquid, excluding primary residence
• Investment objectives: ranked by importance — income, capital appreciation, speculation, etc.
• Risk tolerance: low / moderate / high / speculative
• Liquidity needs: how much of your investable assets can you afford to lose without affecting your lifestyle
• Trading frequency: expected trades per month

The answers aren’t arbitrary. Brokers use them to establish a suitability profile and assign a level. Get them right and you’re approved. Get them wrong and you’re either stuck at Level 1 or denied outright.

What to answer (and why)

Be honest. Don’t lie on a financial application; that can be a federal offense, and brokers do cross-check. But within honest answers, there’s framing that helps. Here’s how to think about each question:

Investment experience

If you’ve traded stocks for more than a couple of years, say so. If you’ve done any options trading at any point — even paper trading, even just buying a single call 8 years ago — say so. “1-2 years” of options experience satisfies most brokers for Level 2 or 3. “No experience” often flags the application for extra review or approval at only Level 1.

If you’re starting from zero, consider opening a paper-trading account at tastytrade or the broker of your choice first. Run some paper trades for a month. Then apply for real options approval with “1 year of options experience (paper trading).” Brokers accept paper trading as real experience for suitability purposes.

Income and net worth

Answer truthfully but pick the tier of the range that includes your actual numbers. The application uses income and net worth to calibrate risk tolerance — someone with $50K in liquid assets shouldn’t be trading $50K-at-risk naked options. If your answers put you in a lower tier, the broker will cap your options level accordingly.

Investment objectives

For the Value Options Letter style of trading, rank:

1. Income / current return
2. Growth / capital appreciation
3. Speculation
4. Preservation of capital

Ranking “speculation” too high flags the application as inappropriate for the strategy. Ranking “preservation of capital” too high caps you at Level 1. “Income” as #1 and “growth” as #2 is the honest framing for covered calls and cash- secured puts; it also maps cleanly to Level 2/3 approval.

Risk tolerance

Moderate or moderate-aggressive. “Low” blocks options. “Speculative” is more than options strategies actually require and sometimes triggers extra scrutiny.

Trading frequency

For a VOL subscriber following 3-5 trades per week: “Frequently” or “10+ trades per month.” Brokers are less suspicious of a declared active trader than of someone who says they’ll trade once and then tries to run 20 trades a month. Matching your declared frequency to your actual pattern avoids questions later.

Broker-by-broker breakdown

Every broker that supports options can technically run any VOL trade. But they differ on commissions, UX quality, margin rates, approval strictness, and retirement-account support. Here’s an opinionated take on each:

Charles Schwab

Historically strong on service and reliability. $0 stock commissions, $0.65 per options contract. Options approval is moderate strictness — Level 3 approval typically available for serious applicants. Excellent for IRAs (supports Level 2 options in IRAs easily). Think-or-Swim platform (inherited from TD Ameritrade) is one of the best options analytical platforms available to retail. Good default choice for most retail investors.

Fidelity

Comparable to Schwab on commissions and approval process. Active Trader Pro platform is solid for options. Slightly more conservative on IRA options levels than Schwab; Level 2 in IRA is standard, Level 3 sometimes requires extra paperwork. Strong customer service. Excellent default if you already bank with Fidelity for other accounts.

Interactive Brokers (IBKR)

The most permissive and capable broker for advanced options traders. Lower per-contract commissions ($0.15-$0.65 depending on volume tier). Best margin rates in the industry — often 3-5% lower than Schwab/Fidelity for actively-margined accounts. TWS (Trader Workstation) platform is professional-grade but has a steep learning curve. Options approval is usually straightforward for serious applicants. Strong in IRAs — they’ll support Level 3 in IRA where others won’t. Best for investors running more than 20 contracts a month or using multi-leg strategies heavily.

tastytrade

Built specifically for options traders by the tastylive team. The UI is the best of any broker for rapid options-trade construction. Commissions are $1.00 per contract to open, $0 to close. Great if you trade many short options (you only pay the open commission, closing is free). Approval process is straightforward and tends toward Level 3 easily. Weak on research tools; strong on execution tools. Excellent choice for investors whose primary activity is options selling.

E*TRADE (Morgan Stanley)

$0 stock, $0.65/contract options. Power E*TRADE platform is capable. More conservative on options approval than Schwab or Fidelity — some applicants report being capped at Level 2 even with significant experience. Historically good on IRAs but adds some friction for Level 3. Fine as a default if you already have an account; not worth switching to specifically for options.

Robinhood

Commission-free, including options. Mobile-first UI is clean but significantly less powerful than desktop-class platforms. Approval process is fast but level caps are narrower than at traditional brokers. IRA options support is limited and recently introduced. Acceptable for small-position retail trading; not ideal for anyone running meaningful size or multi-leg strategies.

Webull, Moomoo, etc.

Similar to Robinhood — commission-free, mobile-first, fine for small accounts. Worth checking current options approval policies at these brokers; they change frequently as the space matures.

My recommendation by use case

• Default for most investors: Charles Schwab or Fidelity. Good execution, good research, straightforward to use, strong customer service.
• If you’re running options income as your primary strategy: tastytrade or Interactive Brokers. tastytrade for simplicity, IBKR for depth.
• If you trade larger size (>50 contracts/month):Interactive Brokers. The margin rates alone justify switching.
• If you’re primarily in a Roth IRA:Schwab or IBKR. Both support Level 3 options in IRAs with minimal friction.
• If you’re just starting: the broker you already have. Switching brokers creates more friction than it’s worth until you’re trading at volume that matters.

What if you’re denied?

If your first application is approved at a lower level than you applied for — or denied outright — don’t panic. Most brokers let you reapply after 3-6 months. In between, do two things:

1. Actually gain experience. Trade what you’re approved for. Even a year of covered calls at Level 1 counts as real options experience when you reapply for Level 3.
2. Call the broker’s options desk directly and ask what would move you up a level. They’ll usually tell you — sometimes it’s declared account funding, sometimes it’s a specific experience tier, sometimes it’s re-answering one question differently.

What to do next

• Pick a broker (or confirm your existing one). Apply for Level 2 options approval at minimum, Level 3 if you want iron condors.
• Once approved, do one paper trade per strategy before real money. Understand the mechanics before trading them live.
• Read Cash-Secured Puts 101, Covered Calls 101, and Iron Condors 101 — the core strategies VOL publishes.
• Understand the tax implications of your options activity via our options tax guide.

Disclaimer: This article is educational content, not personalized investment or brokerage advice. Broker features, commissions, and approval policies change frequently — always verify current terms directly with the broker. Value Options Letter is a subscription research publication and is separate from T&T Capital Management LLC. We are not affiliated with any broker mentioned and receive no compensation from them. For personalized advice, consult a qualified investment professional.