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Options approval levels: which one do you need to sell?

To sell covered calls and cash-secured puts, you usually need one of your broker's lower options levels. The numbers differ by broker, so ask for the level that names those two trades.

Options guide · 8-minute read · Updated 2026-10-26

The short answer

Brokers sort options trades into approval levels. To run the wheel strategy, you need the level that allows covered calls and cash-secured puts. At many brokers, that's one of the two lowest levels.

The level numbers are not the same everywhere. "Level 1" at one broker may not match "Level 1" at another. So don't ask for a number. Ask: "Which level lets me sell covered calls and cash-secured puts in this account?"

Why approval levels exist

Options can be far riskier than stocks. So US brokers must approve an account before it trades options, and they give you a booklet called Characteristics and Risks of Standardized Options. Brokers then decide which trades your account may place, based on your answers and your account type.

Lower levels cover trades where the most you can lose is already "covered" by shares or cash. Higher levels cover trades where losses can be larger than the money in the trade.

A common layout (it varies by broker)

Some brokers use names instead of numbers, and some start counting at zero. Check your broker's current help pages for its exact list.

For the wheel, you never need the highest level. A Covered call is backed by your shares. A cash-secured put is backed by cash. Neither is "naked."

What the application asks

The form is usually short. Expect questions like these:

• Your goals for the account. Choices like keeping money steady, earning from holdings, growth, or speculation.
• Your experience. Years trading stocks and options, and roughly how many trades a year.
• Your finances. Yearly earnings, total net worth, and "liquid" net worth: what you could turn into cash quickly.
• Your job and situation. Employment, and sometimes whether you work at a brokerage.
• The level you want. Some forms ask you to pick one; others decide for you.

Answer truthfully. The level protects you as well as the broker. If you overstate your experience to unlock a higher level, you may get access to trades that can lose more than you have.

If you're turned down, ask the broker why. Some approve a lower level now and let you re-apply later.

What the approved level lets you do (an illustration, not a trade idea)

Here's a trade the lowest level often covers. You own 100 shares of a made-up stock, XYZ, bought at $30. You sell one 30-day call at the $33 strike for $0.60, collecting $60.

The same idea applies to a cash-secured put. The approval checks that the strike times 100 is in your account. It doesn't limit how far the stock can fall after you buy. See how much money you need for the wheel.

Account types change what's allowed

• Cash accounts often allow covered calls and cash-secured puts at lower levels, with no borrowing.
• Margin accounts may allow more, and may hold back less than the full strike for a put. Many wheel sellers still size as if the full cash were held.
• US retirement accounts (IRA, Roth IRA) often allow covered calls. Many allow cash-secured puts. Spreads may be limited. A 401(k) usually doesn't offer options at all; check your plan.

In Canada, brokers also approve options by level, and the levels differ by broker. Covered calls are widely allowed in a TFSA or RRSP. Cash-secured puts depend on the broker. Questrade, IBKR and Wealthsimple each set their own rules for options in registered accounts, so check the broker's current help pages before you open the account. Taxes differ by account; see taxes on selling options in Canada.

What to do this week

1. Open your broker's options help page. Find the level that names covered calls and cash-secured puts.
2. Check it for the exact account you'll use: cash, margin, IRA, TFSA or RRSP.
3. Fill in the form truthfully. Keep a note of the level you asked for and the one you got.
4. While you wait, paper trade one put and one call. See the cheapest way to start selling options.

If options are new to you, read options trading basics before you apply.

Questions