Options approval levels, and what each one unlocks

Open a brokerage account, try to sell a put, and the platform may tell you you're not approved. Nothing is broken. Brokers gate options strategies into tiers, and the tiers are theirs: set by each firm under its own risk policies, inside regulatory rules that require it to judge whether options are appropriate for you at all.

Why the gate exists

Under FINRA rules a broker has to approve an account for options and has to have a basis for believing the customer understands the risks. The firm is also on the hook if a customer can't cover losses. So the application asks about trading experience, income, net worth, liquid assets, and objectives, and the answers plus the account type set what you're allowed to do. Small accounts and stated conservative objectives get lower tiers.

The ladder

The names and numbers vary by broker, but the ordering is nearly universal.

• Bottom tier: covered calls and, usually, cash-secured puts. Strategies where the worst case is already funded, because the shares are there or the cash is there.
• Next: buying calls and puts outright. Worst case is the premium paid.
• Next: spreads. Requires a margin account at most brokers, because the long leg's protection isn't treated like cash.
• Top: uncovered, or naked, short options. Unlimited or near-unlimited worst case, the highest requirements, and often a minimum equity threshold.

Some brokers put cash-secured puts a tier above covered calls; some merge the middle rungs; a few use different names entirely. Read the specific broker's page rather than assuming. The strategies premium sellers care about most, cash-secured puts, covered calls, and credit spreads, span the first three tiers, which means the first approval you're granted often isn't enough.

Account type matters as much as tier

A cash account can't hold spreads at most brokers, because spreads rely on margin treatment. IRAs are cash accounts by nature, and most brokers limit them to covered calls, cash-secured puts, and sometimes defined-risk spreads under a "limited margin" arrangement. If you plan to trade spreads, you need a margin account, and margin accounts have their own approval and a minimum equity requirement, commonly $2,000.

Getting the tier you need

The application is a form, and you can resubmit it. Answer honestly and completely: years of experience, the strategies you've used, the objective. "Income" and "speculation" as objectives unlock more than "capital preservation." Most brokers will reconsider after some months of history in the account, and a request for a higher tier with a short note on what you intend to trade usually gets a reply within days. Overstating experience to get approved works until the loss it was designed to prevent, at which point the broker's records show exactly what you told them.

What approval doesn't mean

It isn't a judgment that the strategy suits you. It's a judgment that the firm is comfortable letting you try. The broker's interest is that you can pay for losses, not that you avoid them. A top-tier approval on a small account is a permission slip, and the sizing discipline still has to come from you.