Options Approval Levels: What Each Tier Allows

Options approval levels are the permission tiers a broker assigns to an account, and each tier unlocks a named list of strategies. Most firms stack them the same way: long calls and long puts and covered calls at the bottom, defined-risk spreads in the middle, uncovered short calls and short puts at the top. The numbering is a house convention rather than a regulation, so one firm's Level 2 can permit exactly what another firm files under Level 3.

What are options approval levels?

An options approval level is the answer a broker returns after reviewing the application to add options to a brokerage account. FINRA's options rule requires every firm to run that review and to record what it approved. The tier is how firms turn that obligation into something an order ticket can enforce: send an order for a strategy above your level and the platform rejects it before it reaches an exchange.

What no rulebook fixes is the shape of the ladder. Firms publish anywhere from three to five tiers, label them Level 1 through Level 5, Tier 1 through Tier 4, or words like Basic and Advanced, and they disagree about where individual strategies belong. Cash-secured puts sit at the bottom tier at one firm and one step up at the next. Read the strategy list printed beside the tier. The number next to it carries no fixed meaning between firms.

Which strategies sit at each level?

The ladder sorts by how a loss is bounded rather than by how complicated the trade looks.

• Bottom tier: long calls, long puts, covered calls against shares already held, and protective puts. Each one has a maximum loss you can name at entry.
• Cash-secured puts: the bottom tier at some firms, one step up at others. The cash to buy the shares sits reserved for the life of the trade.
• Middle tier: spreads. Verticals, calendars, diagonals, butterflies, and iron condors, where the loss is capped by the distance between the strikes.
• Top tier: uncovered short calls and uncovered short puts, plus the short straddles and strangles built from them. Here no strike and no share position caps the loss.

The covered call is the signature trade of the bottom tier. You hold 100 shares, sell one call against them, and collect a premium in exchange for capping the sale price of those shares at the strike. The panel below prices that cap across the busiest AAPL expiration about a month out.

WITH chain AS
(
    SELECT
        expiration_date,
        toFloat64(strike_price)                AS strike,
        formatDateTime(any(date), '%b %e, %Y') AS priced_on,
        avg(toFloat64(option_close))           AS premium,
        avg(toFloat64(underlying_close))       AS spot,
        sum(volume)                            AS contracts
    FROM global_markets.options_greeks
    WHERE underlying_symbol = 'AAPL'
      AND lower(option_type) IN ('call', 'c')
      AND date >= today() - 30
      AND date = (
              SELECT max(date)
              FROM global_markets.options_greeks
              WHERE underlying_symbol = 'AAPL'
                AND date >= today() - 30
          )
      AND days_to_expiry BETWEEN 20 AND 45
      AND iv_converged = 1
      AND volume > 0
    GROUP BY expiration_date, strike
),
busiest AS
(
    SELECT expiration_date
    FROM chain
    GROUP BY expiration_date
    ORDER BY sum(contracts) DESC
    LIMIT 1
)
SELECT
    concat('$', toString(round(strike, 2))) AS strike_label,
    round(premium, 2)                       AS call_premium,
    round(100 * premium / spot, 2)          AS premium_pct_of_spot,
    round(100 * (strike / spot - 1), 1)     AS above_spot_pct,
    priced_on
FROM chain
WHERE expiration_date IN (SELECT expiration_date FROM busiest)
  AND strike >= spot
  AND strike <= spot * 1.10
ORDER BY strike

On Aug 18, 2026, the 6 strikes at or above the share price ran from $6.95 at the strike nearest the stock down to $1.16 at the furthest one, which sits 9.6% above the share price and is worth 0.37% of it. That is the bottom tier in one line: a larger payment for a cap close to the money, a smaller payment for a cap further away. Covered calls walks through the position itself.

How defined risk unlocks the middle tier

One tier up, the account can hold two legs at once. A vertical call spread buys one call and sells a higher-strike call in the same expiration, and the difference between the two premiums is the entire amount at risk. The panel pairs each strike in that same AAPL chain with the strike $5 above it.

WITH chain AS
(
    SELECT
        expiration_date,
        toFloat64(strike_price)          AS strike,
        toFloat64(strike_price) + 5      AS next_strike,
        avg(toFloat64(option_close))     AS premium,
        avg(toFloat64(underlying_close)) AS spot,
        sum(volume)                      AS contracts
    FROM global_markets.options_greeks
    WHERE underlying_symbol = 'AAPL'
      AND lower(option_type) IN ('call', 'c')
      AND date >= today() - 30
      AND date = (
              SELECT max(date)
              FROM global_markets.options_greeks
              WHERE underlying_symbol = 'AAPL'
                AND date >= today() - 30
          )
      AND days_to_expiry BETWEEN 20 AND 45
      AND iv_converged = 1
      AND volume > 0
    GROUP BY expiration_date, strike, next_strike
),
busiest AS
(
    SELECT expiration_date
    FROM chain
    GROUP BY expiration_date
    ORDER BY sum(contracts) DESC
    LIMIT 1
)
SELECT
    concat('$', toString(round(lo.strike, 2)), ' / $', toString(round(hi.strike, 2))) AS spread_label,
    round(lo.premium - hi.premium, 2)                                                 AS max_loss_per_share,
    round(5 - (lo.premium - hi.premium), 2)                                           AS max_gain_per_share
FROM chain AS lo
INNER JOIN chain AS hi
    ON lo.expiration_date = hi.expiration_date
   AND lo.next_strike = hi.strike
WHERE lo.expiration_date IN (SELECT expiration_date FROM busiest)
  AND lo.strike >= lo.spot * 0.97
  AND lo.strike <= lo.spot * 1.08
ORDER BY lo.strike

The first pair, $305 / $310, risks $3 per share against a maximum gain of $2. The last pair, $335 / $340, risks $0.59 against a maximum of $4.41. Every row adds to $5, the width of the spread, split between the two columns. One contract covers 100 shares, so the cash a ticket holds is the per-share debit multiplied by 100, known in full before the order is sent. A broker can reserve that exact figure, which is the mechanical reason spreads sit above single legs and below naked short options. Credit spread versus debit spread covers the two ways to build one.

What does the options application ask?

The form is short, and every field feeds the tier decision:

• Annual income and total net worth.
• Liquid net worth, the portion not tied up in a home or a retirement plan.
• Years of options experience and the number of trades placed in a typical year.
• The investment objective on the account: capital preservation, income, growth, or speculation.
• An acknowledgment of the options disclosure document, Characteristics and Risks of Standardized Options, published by the OCC.

Firms map those answers to a ceiling. The objective field carries more weight than any other single line: an account marked capital preservation often stops at the bottom tier, since many firms want income or speculation on file before granting spreads. An experience field left at zero years works the same way. A profile filled in defensively lands the account below the tier the applicant expected, and the repair is a corrected profile rather than a fresh application. Firms re-review on request and expect the figures on file to be current.

Why the top tier is gated

Selling a call without owning the shares leaves the seller obligated to deliver at the strike wherever the stock trades, and a stock has no ceiling. Firms gate that tier on the size of the move an account would have to absorb rather than on the strategy's complexity. The panel measures the largest single-session move, open to close, for six liquid names since 2016.

SELECT
    ticker,
    round(100 * max(toFloat64(close) / toFloat64(open) - 1), 1)                   AS largest_up_pct,
    round(100 * abs(min(toFloat64(close) / toFloat64(open) - 1)), 1)              AS largest_down_pct,
    formatDateTime(argMax(date, toFloat64(close) / toFloat64(open)), '%b %e, %Y') AS largest_up_on
FROM global_markets.stocks_daily_aggs
WHERE ticker IN ('AAPL', 'MSFT', 'NVDA', 'AMD', 'KO', 'SPY')
  AND date >= '2016-01-01'
  AND open > 0
GROUP BY ticker
ORDER BY largest_up_pct DESC

AMD posted the largest single-session gain in the group at 25.1%, on Apr 22, 2016, and its worst session over the same window fell 12.5%. The name with the smallest maximum, KO, still printed a 7.1% session. A short call struck a few percent out of the money is exposed to every point of a session like that, and the account rather than a strike absorbs it. Margin for selling naked options works through the daily requirement that exposure carries, Reg T margin versus portfolio margin compares the two frameworks brokers use to compute it, and how risky options trading is puts measured numbers on the outcomes.

Options approval levels in a retirement account

A retirement account cannot borrow, and the strategies above the middle tier are built around borrowing. That single constraint sets the IRA ceiling at long calls and puts, covered calls, cash-secured puts, and, where the firm permits them, defined-risk spreads collateralized in full with cash. Uncovered short calls are off the table at every mainstream firm.

Full collateral is the part that surprises people. A cash-secured put reserves the strike times 100 in cash until the option is closed or expires, and a covered call requires the 100 shares to be sitting in the account first. The panel prices that floor across six household names.

SELECT
    ticker,
    round(toFloat64(argMax(close, date)) / 10, 1) AS cost_of_100_shares_k,
    formatDateTime(max(date), '%b %e, %Y')        AS priced_on
FROM global_markets.stocks_daily_aggs
WHERE ticker IN ('AAPL', 'MSFT', 'NVDA', 'KO', 'SPY', 'F')
  AND date >= today() - 20
GROUP BY ticker
ORDER BY cost_of_100_shares_k DESC

As of Aug 20, 2026, 100 shares of SPY ran about $76.6k, while the cheapest of the six, F, needed roughly $1.4k. The same approval level covers both names. What separates them is the cash on hand needed to use it, which is why the tier a broker grants and the tier an account can actually put to work are different questions. Trading options inside an IRA covers the account rules in detail, and covered call versus cash-secured put compares the two trades that fill most retirement tiers.

How accounts move up a level

Every firm runs the same loop: update the financial profile, request the tier, wait for a review that lands the same day at some firms and takes several business days at others. Four things sit underneath the answer.

• Account type. A cash account cannot hold a Reg T spread at most firms, so the middle tier usually arrives alongside a margin agreement.
• Equity minimums. A margin account requires $2,000 in equity under long-standing FINRA rules, portfolio margin requires $100,000, and house minimums are often set above both.
• The recorded profile. Income, liquid net worth, and stated experience are the inputs, and a profile untouched since the account opened describes a different person than the one applying.
• The grant itself. An upgrade request names a tier; the approval names strategies, and the strategy list is what the order ticket checks.

FAQ

What do options approval levels mean?

They are permission tiers a broker assigns to an account. Each tier names the option strategies the account may place, from long calls and covered calls at the bottom to uncovered short options at the top. Numbering differs between firms, so the strategy list attached to a tier is the part that carries meaning.

Which options approval level do I need for spreads?

Most firms place vertical spreads, calendars, and iron condors in the middle tier, commonly labeled Level 2 or Level 3, and pair it with a margin agreement. A cash account at the same firm often stops one tier below that.

What is the highest options level allowed in an IRA?

Retirement accounts stop below uncovered short options at every mainstream firm. The working ceiling is long calls and puts, covered calls, cash-secured puts, and defined-risk spreads where the firm allows them with full cash collateral.

Why would a broker deny an options upgrade?

Common inputs are income or liquid net worth below the firm's threshold for that tier, an experience field left at zero, an objective set to capital preservation, or a cash account applying for a tier that requires margin. Firms re-review once the profile on file is corrected.

Every panel on this page ships with the SQL that produced it. Open one, swap the ticker for a name you follow, and the same question answers itself on the Strasmore terminal.