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Below are the five levels of option trading, defined by the types of option trades you can place if you have an Option Agreement approved and on file with Fidelity.
The option trades allowed for each of the five option trading levels:
* Retirement accounts can be approved to trade spreads. A new option application and a Spreads Agreement must be submitted at the same time and approved prior to placing any spread transaction.
You must meet the following requirements to trade options at Fidelity:
Select Update Accounts/Features under the Accounts & Trade tab, and click Margin and Options under Account Features.
To trade on margin, you must have a Margin Agreement on file with Fidelity. If you do not have a Margin Agreement, you must use cash. To establish a Margin Agreement on an account, select Update Accounts/Features under the Accounts & Trade tab, and click Margin and Options under Account Features.
Multi-leg options are two or more option transactions, or "legs," bought and/or sold simultaneously in order to achieve a certain investment goal. Typically, multi-leg options are traded according to a particular multi-leg option trading strategy. For more information, see Trading Multi-leg Options.
With a call option, the buyer has the right to buy shares of the underlying security at a specific price for a specified time period. With a put option, the buyer has the right to sell shares of the underlying security at a specified price for a specified period of time.
You can learn more about trading options through Fidelity's Learning Center at Research > Learning Center.
Below is a list of the option strategies included in the option summary view, and their definitions.
A short put position in a cash account that is secured by setting aside cash equal to 100% of the exercisable value of the put contract(s).
| Rules: | None |
| Example: | Short 1 Put XYZ 50 |
| Cash set aside: | $5,000 = 1 (qty) x 100 (multiplier) x 50 (Strike Price) |
The collar spread, also called a "fence," is the simultaneous purchase of an out-of-the-money put and sale of an out-of-the-money covered call. Under normal circumstances, the protective put and covered call comprising the collar share the same expiration dates, but have different strike prices. A covered call is sold on a share-for-share basis against the underlying stock. For example, for stock XYZ currently trading at $50, buying 100 shares of XYZ, selling an XYZ 55 call, and buying an XYZ 45 put creates a collar. The trader is protected if the stock drops below the strike price of the put, and forfeits any profits should the stock rise above the strike price of the call. Traders who are moderately bullish on an underlying stock, but lacking strong conviction, often employ collar spreads. The strike price of the call determines the degree of bullishness of the strategy. The further the call moves out-of-the-money, the more bullish the strategy becomes.
| Rules: | The strike price of the put must be less than the strike price of the call option with the same expiration date. |
| Example: | Long 1000 XYZ at 120 Short 10 Call XYZ 125 Long 10 Put XYZ 115 |
An options trading arbitrage strategy in which a customer takes a long position in an underlying stock and offsets that holding with the simultaneous purchase of an at-the-money put and sale of an at-the-money call with the same expiration. The two options create a synthetic short stock, and the customer holds parallel long and short positions. The strategy is meant to take advantage of overpriced options, and the profit is made in the premium difference between the call and the put.
| Rules: | The strike prices of the put and the call options must be equal. |
| Example: | Long 1000 XYZ at 120 Short 10 Call XYZ 120 Long 10 Put XYZ 120 |
Convertible bonds covering short calls and short common stock.
| Rules: | Before pairing can occur, the securities must be converted into the quantity it represents for the underlying security using the specific conversion ratio for each one. After conversion, if the total strategy requirements are greater than the naked requirements, the hedge should not be used. |
In a covered call, also known as a covered-write or buy/write, a customer sells, or "writes," a call option against a long stock position. By writing an option, the customer receives a cash credit. If a customer sells calls against an existing position, the strategy is called a covered-call or covered-write. If the customer purchases the underlying stock and sells calls against it simultaneously, the strategy is called a buy/write.
| Rules: | Long stock and short calls on same stock |
| Example: | Long 1000 XYZ at 100 Short 10 XYZ 105 Call |
An options strategy in which an investor writes a put option and simultaneously holds a short position in the underlying stock.
| Rules: | Short stock and Short Puts on same stock |
| Example: | Short 1000 XYZ at 50 Short 10 XYZ 50 Put |
An options strategy consisting of the buying and selling of options on the same underlying stock, in which the credit from the sale is greater than the cost of the purchase, resulting in a credit at the time of entry into the strategy. In a credit spread, the credit received from entering the position is the maximum profit achievable through the strategy.
| Rules: | A credit spread consists of either all calls or all puts on the same underlying with the same expiration date. |
| Example: | Calls - Short call strike is lower than the long call strike Puts - Puts - Long put strike is lower than the short put strike |
An options strategy consisting of the buying and selling of options on the same underlying stock, in which the cost of the option purchases is greater than the proceeds of the sale, resulting in a debit at the time of entry into the strategy. Breaking even or profiting from a debit spread requires that the value of the purchased options increase to cover at least the debit.
| Rules: | A debit spread consists of either all calls or all puts on the same underlying with the same expiration date. |
| Example: | Calls - Long call strike is lower than the short call strike Puts - Short put strike is lower than the long put strike |
An options strategy in which one leg is a short position in a stock and the second leg is a call that hedges against loss in the case of a rise in the price of the underlying.
| Rules: | None |
| Example: | Long Stock Long Put Option |
An options trading arbitrage strategy in which two vertical spreads, a bull call spread and a short bear spread, are purchased together to take advantage of underpriced contracts. The profit is made in the premium difference between the spreads.
| Rules: | The strike prices of the long call and short put must be equal. The strike prices of the short call and the long put must be equal. The strike price of the long call and the short put must be less than the strike price short call and the long put. |
| Example: | Long 10 Call XYZ 120
Short 10 Call XYZ 125 Long 10 Put XYZ 125 Short 10 Put XYZ 120 |
An options strategy composed of four options contracts at three strike prices for the same class (call or put) on the same expiration date: one bought in-the-money, two sold at-the-money, and one bought out-of-the-money. Loss and profit are both limited in this strategy, and maximum profit is achieved when the underlying price doesn't change.
| Rules: | The intervals between the strike prices of the three positions must be equal and in either ascending (Calls) or descending (Puts) order. The quantity of the long calls/puts must equal the quantity of the short calls/puts. |
| Example: | Long 10 Call XYZ 120 Short 20 Call XYZ 125 Long 10 Call XYZ 130 |
An options trading strategy comprised of entering a calendar spread and a butterfly spread. This is a combined strategy that can create a discounted long position with the downside protection of the limiting loss to the premium of the contracts.
| Example: | Long 1 XYZ Jul 50 Call Short 2 XYZ Jun 55 Call Long 1 XYZ Jun 60 Call |
An options trading strategy comprised of a entering a long calendar spread and two long butterfly spreads. This is a combined strategy that can create a discounted long position with the downside protection limiting loss to the premium of the contracts.
| Example: | Long 1 XYZ Jul 50 Call Short 1 XYZ Jun 55 Call Short 1 XYZ Jun 60 Call Long 1 XYZ Jun 65 Call |
A bullish options strategy in which the customer buys call contracts with the intention of profiting if the underlying stock price rises above the strike price before expiration. Losses are limited to the premium paid for the options, and profit potential is unlimited.
| Rules: | None |
| Example: | Long 10 XYZ 50 Call |
Also known as a "flat butterfly" or an "elongated butterfly," a four-leg spread. In a long call condor spread, there is a long call of a lower strike price, one short call of a second strike price, one short call of a third strike price, and a long call of a fourth strike price. Each call has the same expiration date, and the strike prices are an equal distance apart.
| Rules: | The quantity of all contracts must be equal. The interval between strike prices of the first and second leg must equal the interval between strike prices of the third and fourth leg. The interval between strike prices of the two middle legs does not need to equal intervals between the first and second, and third and fourth. Strike prices must be in ascending (Calls) or descending (Puts) order. |
| Example: | Long 10 Call XYZ 120 Short 10 Call XYZ 125 Short 10 Call XYZ 130 Long 10 Call XYZ 135 |
A bearish options strategy in which the customer buys put contracts with the intention of profiting if the underlying stock price falls below the strike price before expiration of the option. It is similar to shorting a stock, but with an expiration date. Unlike shorting a stock, a customer does not need to borrow stock, and limits losses to the premium paid for the options.
| Rules: | None |
| Example: | Long 10 XYZ 50 Put |
The writing of call contracts without owning the underlying stock. The maximum profit is the amount of premium collected, but the risk is significant, as with short-selling.
| Rules: | None |
| Example: | Short 10 XYZ 50 Call |
The writing of a put contract without also short selling the underlying stock or having an affiliated position. The maximum profit is the premium collected. The maximum risk is the strike price sold less the premium received. This strategy is commonly used by investors who are looking to accumulate shares in the underlying stock.
| Rules: | None |
| Example: | Short 10 XYZ 50 Put |
An options strategy in which a long equity position's unrealized profit is protected by the purchase of put options. The options serve as the equivalent of a stop loss order, giving the customer the right to sell the equity at the strike price, limiting the diminished profit from a decline in the share price.
| Rules: | None |
| Example: | Long 1000 XYZ at 50 Long 10 XYZ 50 Put |
An options trading arbitrage strategy in which a customer takes a short position in an underlying stock and offsets that with the simultaneous sale of an at-the-money put and purchase of an at-the-money call with the same expiration. The two options create a synthetic long stock, and the customer holds parallel long and short positions. The strategy is meant to take advantage of underpriced options, and the profit is made in the premium difference between the call and the put.
| Rules: | The strike prices of the put and call options must be equal. Reverse conversions are not permissible with index options. |
| Example: | Short 1000 XYZ at 50 Short 10 XYZ 50 Put Long 10 XYZ 50 Call |
An options trading arbitrage strategy in which two vertical spreads, a bull call spread and a short bear spread, are sold together to take advantage of overpriced contracts. The profit is made in the premium difference between the spreads.
| Rules: | The strike prices of the long call and the short put must be equal. The strike prices of the short call and the long put must be equal. The strike price of the long call and the short put must be greater than the strike price of the short call and the long put. |
| Example: | Long 10 XYZ 125 Call Short 10 XYZ 120 Call Long 10 XYZ 120 Put Short 10 XYZ 125 Put |
An options strategy most profitable when the underlying will be volatile, it is composed of four options contracts at three strike prices for the same class (call or put) on the same expiration date: one sold in-the-money, two bought at-the-money, and one sold out-of-the-money. Loss and profit are both limited in this strategy, and maximum profit is achieved when the underlying price changes significantly, past either the highest or lowest strike price agreed to.
| Rules: | The quantity of the short calls/puts must equal the quantity of the long calls/puts. The intervals between the strike prices of the three positions must be equal and in ascending order. |
| Example: | Short 10 XYZ 120 Call Long 20 XYZ 125 Call Short 10 XYZ 130 Call |
An options strategy comprised of a entering a long calendar spread, a long butterfly spread and a short box spread.
An options strategy comprised of a entering a long calendar spread, two long butterfly spreads and a short box spread.
An options trading strategy in which the customer sells an out-of-the-money put, buys an at-the-money put, buys an at-the-money call and sells an out-of-the-money call. The trade results in a net debit which is the maximum loss possible. This will occur if the underlying price is unchanged at expiration. The strategy is most profitable if the underlying price changes significantly, past either the highest or lowest strike price agreed to.
| Rules: | The quantity of all contracts must be equal. The interval between the strike prices of the puts must equal the interval between the strike prices of the calls. The strike price of the short put must equal the strike price of the short call. The long put exercise price must be less than the short contracts. The long call exercise price must be greater than the short contracts. |
| Example: | Long 10 XYZ 120 Put Short 10 XYZ 125 Put Short 10 XYZ 125 Call Long 10 XYZ 130 Call |
An options strategy involving four strike prices that has both limited risk and limited profit potential. It is established by buying one put at the lowest strike, writing one put at the second strike, writing a call at the third strike, and buying another call at the fourth (highest) strike. Maximum profit is achieved when the underlying stock remains stable and all of the contracts expire worthless.
| Rules: | The quantity of all contracts must be equal. The interval between the strike prices of the puts must equal the interval between the strike prices of the calls. The interval between the strike prices of the short put and the short call does not need to equal the interval between the first and second legs or the interval between the third and fourth leg. Long put exercise price must be less than the short contracts. Long call exercise price must be greater than the short contracts. |
| Examples: | Long 10 XYZ 120 Put Short 10 XYZ 125 Put Short 10 XYZ 135 Call Long 10 XYZ 140 Call |
The short selling of an asset you hold an equivalent or greater long position in. This may be accomplished by trading an equity or buying or writing options.
A type of complex options trade order that 1) is the simultaneous purchase of puts and calls or the sale of puts and calls, and 2) consists of options with the same strike price and same expiration month. For example, 1) sell 1 IBM JAN 125 call and 2) sell 1 IBM JAN 125 put. To place a long straddle order, you must be approved for option trading level two or higher. To write a straddle, you must have a Margin Agreement on file with Fidelity and be approved for option trading level four or higher.
| Rules: | None |
| Examples: | Long Straddle Long 10 XYZ 50 Put Long 10 XYZ 50 Call |
| Short Straddle Short 10 XYZ 50 Put Short 10 XYZ 50 Call |
A strangle is a multi-leg options trading strategy involving a long call and a long put, or a short call and a short put, where both options have the same expiration date, but different strike prices.
| Rules: | None |
| Examples: | Long Strangle Long 10 XYZ 45 Put Long 10 XYZ 50 Call |
| Short Straddle Short 10 XYZ 45 Put Short 10 XYZ 50 Call |
A stock, convertible bond or convertible preferred held by a customer, on which listed options are not currently owned or written but may be.
Your positions, whenever possible, will be paired or grouped as strategies, which can reduce margin requirements and provide you a much easier view of your positions, risk, and performance. Strategies displayed will include those entered into as multi-leg trade orders as well as those paired from positions entered into in separate transactions. Pairings may be different than your originally executed order and may not reflect your actual investment strategy.
Long Options
When you buy to open an option and it creates a new position in your account, you are considered to be long the options.Requirement: 100% cash upfront
Example:
Buy 10 XYZ Jan 20 Calls at $1; Cost = 10 (number of contracts) x 1 (option price) x 100 (option multiplier) = $1,000
The account consists of: Long 10 XYZ Jan 20 Calls
Spread Requirements*
There are two types of spreads: debit and credit. If you are attempting to open spread positions you must maintain a minimum net worth of $10,000 for both equity and indexes in your account. This requirement applies to all eligible account types for spread trading.*Retirement accounts can be approved to trade spreads. A new option application and a Spreads Agreement must be submitted at the same time and approved prior to placing any spread transaction.
Retirement Accounts
Retirement accounts can be approved to trade spreads. A new option application and a Spreads Agreement must be submitted at the same time and approved prior to placing any spread transaction. If you are approved for spreads trading in your retirement account you must maintain a minimum Cash Spreads Reserve Requirement of $2,000. This $2,000 requirement is in addition to the margin requirement for debit spreads, but can be counted towards the margin requirement on credit spreads.
Debit Spread Requirements
- Full payment of the debit is required.
- Initial spread transactions require an additional cash amount of the minimum cash requirement (also called the cash spread reserve) of $2,000.
- The minimum cash requirement is a one-time assessment and must be maintained while you hold spreads in your retirement account.
Example:
In this example, the first spread order placed is:
Buy 10 ABC Jan 50 Calls at $3
Sell 10 ABC Jan 55 Calls at $1
Net debit = $2.00To calculate the debit spread requirement:
Net debit (2.00) x number of contracts (10) x multiplier (100) = Debit ($2,000)To calculate the cash reserve debit:
$2,000 (debit) + $2,000 (minimum cash requirement) = $4,000 (total cash reserve debit)The account consists of:
Cash spread reserve (requirement) = $2,000.
Spread:
Long 10 ABC Jan 50 Calls
Short 10 ABC Jan 55 CallsCredit Spreads Requirements
You must make full payment of the credit spread requirement.Initial spread transactions require you to meet the minimum cash requirement, also called the cash spread reserve, of $2,000.
The minimum equity requirement is a one-time assessment and must be maintained while you hold spreads in your retirement account.
Important: Credit spread requirements can be met by the minimum cash reserve up to $2,000. If the spread requirements are greater than $2,000 you must have the available cash to meet the debit or credit spread requirement.
Example 1:
In this example, the customer is placing his or her first credit spread order.Sell 15 XYZ Mar 65 Puts at $2.00
Buy 15 XYZ Mar 60 Puts at $1.00
Net Credit $1.00To calculate the spread requirement:
Total spread requirement ($6,000) = $7,500 (Difference between the strike prices x number of contracts x multiplier) - $1,500 (cash received)To calculate the cash reserve debit:
Details:
- Difference between the strike prices ($5) x number of contracts (15) x multiplier (100) = $7,500
- Net credit ($1) x number of contracts (15) x multiplier (100) = $1,500
- The total spread requirement of $6,000 is greater than the $5,000 minimum cash requirement.
- Therefore, the cash reserve debit is $6,000.
The account consists of:
Cash spread reserve (requirement) = $7,500 ($6,000 cash reserve debit plus $1,500 credit received)
Spread:
- Short 10 XYZ Mar 65 Puts
- Long 10 XYZ Mar 60 Puts
Example 2:
In this example, this is the first credit spread order placed.Sell 5 XYZ Mar 65 Puts at $2.50
Buy 5 XYZ Mar 60 Puts at $1.50
Net Credit $1.00To calculate the spread requirement:
Total spread requirement ($2,000) = $2,500 (Difference between the strike prices x number of contracts x multiplier) - $500 (credit received)To calculate the cash reserve debit:
Details:
- Total spread requirement ($2,500) = Difference between the strike prices ($5) x number of contracts (5) x multiplier (100)
- Credit received ($500) = Net credit ($1) x number of contracts (5) x multiplier (100)
- The net spread requirement of $2,000 is equal to the $2,000 minimum cash requirement.
- Therefore, the cash reserve debit is $1,500 ($2,000 minimum equity requirement - $500 credit received).
The account consists of:
Cash spread reserve (requirement) = $2,000 ($2,000 spread requirement)
Spread:
- Sell 5 XYZ Mar 50 Calls
- Buy 5 XYZ Mar 55 Calls
Non-Retirement Accounts
Debit Spreads Requirement
Full payment of the debit is required.Example:
Buy 10 XYZ 20 Calls at $2
Sell 10 XYZ 25 Calls at $.50
Net Debit = $1.50 or (Long Premium $2 - Short Premium $.50) x 10 (contracts) x 100 (multiplier) = $1,500The account consists of:
Long 10 XYZ Jan 20 Calls
Short 10 XYZ Jan 25 CallsCredit Spreads Requirements
Whichever is lower:
- The greater of the two naked requirements on the short call, as calculated for naked equity calls
- The greater of the difference in the strike prices or the difference in the premiums
Example:
Underlying price $55
Sell 10 XYZ Feb 50 Put at $1.50
Buy 10 XYZ Feb 45 at $.50 Put
Net Credit = ($1.50 (short premium) - $.50 (long premium)) x 10 (contracts) x 100 (multiplier) = $1,000Requirement = $5, 000
Which is the lower of:
Difference between Strike prices:
50 (strike price) - 45 (strike price) x 10 (contracts) x 100 (multiplier) = $5,000
or
The higher of the Naked Requirement:
- (($55 (underlying stock) x .25) - 5 (out of the money) + 1.50 (premium)) x 100 (multiplier) x 10 (contracts) = $10,250
- (50 (strike price) x .15 + $1.50 (premium)) x 100 (multiplier) x 10 (contracts) = $9,000
Naked Requirements
An option is considered naked when you sell an option without owning the underlying asset or having the cash to cover the exercisable value.
If you are attempting to short naked options you must have a margin account and must maintain a minimum balance of $20,000 for equity and $50,000 for indexes in your account.
Equity calls: The higher of the following requirements:
- 25% of the underlying stock value, minus the out-of-the-money amount, plus the premium
- 15% of the underlying stock value, plus the premium
Equity puts: The higher of the following requirements:
- 25% of the underlying stock value, minus the out-of-the-money amount, plus the premium
- Premium plus 15% of the strike price (for both in-the-money and out-of-the-money options)
Index calls: The higher of the following requirements:
Broad-based:
Narrow-based:
- 20% of the underlying value, minus the out-of-the-money amount, plus the premium
- 15% of the underlying value, plus the premium
- 25% of the underlying value, minus the out-of-the-money amount, plus the premium
- 15% of the strike price, plus the premium
For short straddles or strangles, the requirement is the greater of the two naked option requirements, plus the premium of the other option, in cash or available to borrow.
Requirements are subject to change.
Below is a list of features in the options summary view, and information about how to use them.