Published: June 3, 2026.

If you have subscribed to an options-focused publication from one of TradeSmith's affiliated analysts, you will need to have options trading enabled at your brokerage account before you can follow their trade recommendations. This article explains the different levels of options trading approval and how to apply for the level you need.

Why Do Brokers Require Options Approval?

Options trading carries more risk than buying stocks outright. To protect investors, brokers are required by regulators to assess whether a customer has the experience, knowledge, and financial situation to trade options. Based on that assessment, they assign an approval level that determines which types of options strategies you are permitted to use.

Overview of Options Trading Levels

Most brokers use a tiered approval system, typically ranging from Level 1 to Level 4 (some brokers use up to Level 5). Each level unlocks additional strategies. Here is a general overview:

Level 1 — Covered Calls and Cash-Secured Puts

The entry-level approval. Level 1 allows two commonly used income-generating strategies:

• Covered Calls — If you already own shares of a stock, a covered call allows you to earn extra income on those shares by agreeing to sell them at a specific price within a set timeframe. You receive a cash payment (called a premium) upfront. If the stock doesn't reach that price, you keep the premium and your shares.
• Cash-Secured Puts — A cash-secured put allows you to earn income while waiting to buy a stock at a price you are comfortable with. You agree to buy shares of a stock at a specific price within a set timeframe, and receive a premium upfront for making that commitment. Your broker will hold enough cash in your account to cover the purchase in case you are required to buy the shares.

Both strategies are considered lower risk since they are backed by either existing stock or cash holdings.

Level 2 — Buying Calls and Puts

Allows you to buy call and put options outright. This is the level most commonly required to follow analyst recommendations that involve purchasing options. Your maximum risk is limited to the premium paid. Most affiliated analyst publications that recommend buying options require at least Level 2 approval.

Level 3 — Options Spreads

Allows you to trade options spreads — strategies that involve buying and selling options simultaneously on the same underlying security. This includes bull call spreads, bear put spreads, and vertical spreads. Some analyst publications that recommend spread strategies will require Level 3 approval.

Level 4 — Naked Options (Uncovered)

Allows you to sell options without holding the underlying stock or sufficient cash as collateral. This is considered the highest-risk strategy and requires significant trading experience and account equity. Most analyst publications do not require Level 4.

How to Apply for Options Approval

The application process varies slightly by broker, but generally involves completing an online form within your brokerage account. You will typically be asked about your:

• Investment experience and knowledge of options
• Annual income and net worth
• Liquid net worth and investment objectives
• Employment status

Based on your answers, your broker will assign you an approval level. If you are not approved for the level you need, you can contact your broker to discuss your application or request a higher level manually.

What Level Do I Need?

The level you need will depend on the specific publication you have subscribed to. As a general guide:

• Publications that recommend buying calls or puts → Level 2
• Publications that recommend options spreads → Level 3
• Publications that recommend covered calls or cash-secured puts → Level 1

If you are unsure what level your publication requires, please contact the publisher directly or reach out to our support team and we will do our best to help.

Need Help?

Our Customer Success team is ready to assist. Please note that for questions specific to your broker's approval process, you will need to contact your broker directly as each broker has its own policies and timelines.

• Phone: 1-866-385-2076 (toll-free)
• Email: [email protected]

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