Options Trading

Online options trading is simply the execution of stock option trading via the Internet versus the more traditional options trading that is conducted at a "bricks and mortar" brokerage. By doing stock option trading on the Internet, a trader will typically save a significant amount in trade commissions. Another benefit is that a trader may execute his or her trades from anywhere that an Internet connection is available. Plus, the popular new smart phones allow access to brokerage accounts from anywhere that a cellular signal is available.

You need to check with your current broker to see if the full gamut of options trading is available on their online platform. Some brokerages will only offer a subset of options trades. This subset typically includes the ever-popular covered call options strategy. Most brokerages in the U.S. consider covered calls to be Level 1 in their ranking of options authorization levels. Level 2 is typically long calls and long puts. Level 3 is spread trades. Level 4 is naked options on stocks. Level 5 is naked options on indices. [Note: In Canada, most brokers have just four levels of trading for options.]

Some brokers have very sophisticated online platforms, allowing all five levels of options to be executed online via their software. When you contact you broker, specifically ask which levels of online options trading they offer and – more importantly – which levels you have been approved for. If you are not approved for a trading level that you want to be able to trade, then ask how you can get approved. Don't worry if they ask you to say that you are a "speculative trader" – all options trader are. We don't gamble, we speculate – there is a very big difference.