What Are Options Trading Approval Levels, and How Do I Get Approved for Higher Levels?

Options Trading Podcast

When you first apply to trade options, it can feel like starting a new game where all the best items are locked. This "gatekeeping" system is one of the first hurdles every trader faces.

What are options trading approval levels, and how do I get approved for higher levels?

In this deep dive, we decode the entire structure for you. You'll learn why these levels exist (hint: it's more about protecting your broker than protecting you) and what strategies are unlocked at each stage.

We break down the four common levels: from Level 1 ("Training Wheels," like covered calls) and Level 2 ("Lottery Tickets," for buying calls and puts) to Level 3 ("The Real Trader," which unlocks defined-risk spreads) and Level 4 ("The Deep End," for naked, high-risk strategies). Most importantly, we lay out a 5-step action plan for how you can "level up" by strategically updating your application, enabling margin, and gaining experience (even with paper trading).

After listening, what's your next step to unlock the strategies you want to use?

Key Takeaways

• Why Levels Exist: Approval levels are a risk-management tool for brokers. They are designed to prevent traders from taking on unlimited or complex risks that could lead to losses exceeding their account balance, leaving the broker on the hook.
• The 4 Common Levels:
  1. Level 1 (Training Wheels): Allows the most conservative, defined-risk strategies, primarily covered callsand protective puts.
  2. Level 2 (Lottery Tickets): Unlocks the ability to buy calls and puts. Your risk is still defined—the most you can lose is the premium you paid.
  3. Level 3 (The Real Trader): The gateway for most income strategies. This level unlocks defined-risk spreads (like credit spreads and debit spreads) and requires a margin account.
  4. Level 4 (The Deep End): Allows the highest-risk strategies, including selling naked options (naked calls/puts), which have undefined or unlimited risk.
• How to "Level Up" (A 5-Step Plan):
  1. Be Strategic on Your Application: Honestly but accurately reflect your experience, goals (e.g., "spread trading"), and risk tolerance.
  2. Enable Margin: This is non-negotiable for Level 3 and above, as it's required for selling options, even within spreads.
  3. Add Sufficient Capital: Higher levels require a larger financial cushion ($2k-$10k+ is often cited for Level 3).
  4. Practice (Paper Trading Counts): Use a simulator to gain experience with spreads, which you can then honestly claim on your application.
  5. Reapply: If you're denied, it's not permanent. Gain more experience, add capital, and reapply in a few months.

"Level 3 is the gateway for those popular income strategies."

Timestamped Summary

• (01:38) What are approval levels and why do brokers use them? (Risk management)
• (02:53) Level 1: "The Training Wheels" (Covered Calls, Protective Puts)
• (04:12) Level 2: "The Lottery Ticket Level" (Buying Calls & Puts)
• (06:38) Level 3: "The Real Trader Level" (Spreads, Margin Required)
• (09:17) Level 4: "The Deep End" (Naked Options, Unlimited Risk)
• (11:37) How to "Level Up": A 5-step plan to get approved for higher levels.

What level are you aiming for? Join our free Facebook group and share your trading journey! If this episode clarified the approval process, please leave us a 5-star review on Apple Podcasts! Know someone stuck on Level 1? Share this episode with them!

Support the show