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What is an options approval level?

In one line: An options approval level is the tier of options permission a broker grants an account, setting which trades, such as covered calls, puts or spreads, it can place.

Trading glossary · Updated 2026-10-26

How it works

Before you can trade options, your broker asks about your experience, income, savings and goals. Then it approves your account for a level. Each level unlocks more kinds of trades, and more risk.

Brokers number and name their levels differently. A common pattern looks like this:

• Lowest level: Covered calls on shares you own. Sometimes cash-secured puts too.
• Next level: buying calls and puts. Many brokers add cash-secured puts here.
• Middle level: spreads, where one option limits the risk of another. Usually needs a margin account.
• Highest level: selling options with nothing to cover them, like a Naked call. Needs margin and more approval.

That's a pattern, not a rule. Check your broker's current help pages for what each level allows there.

An example (hypothetical)

You open a new account and get the lowest level (an illustration, not a trade idea). You own 100 shares of ABC, so you can sell a call against them. Then you try to sell a $45 put on XYZ, and the order is rejected. That broker puts cash-secured puts one level up.

You apply and are approved. Now the put goes through, for $1.00. The level changed what you can place. It didn't change what the trade can lose:

A math example, not a promise.

Why it matters for sellers

The wheel strategy needs two permissions: covered calls and cash-secured puts. At many brokers, that means one of the two lowest levels. You usually don't need margin or the top level to run it.

A higher level isn't a skill badge. It's permission to take bigger risks, often with borrowed money. If you only plan to sell covered calls and cash-secured puts, asking for more mostly adds ways to get hurt.

In Canada, the account type matters too. In a TFSA or RRSP, covered calls are widely allowed, but cash-secured puts depend on the broker. Options permissions differ by broker, so check before you plan a trade. Our guide on options approval levels goes deeper.

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