Options Approval Levels for IRA Accounts
How Approval Levels Work
Brokers use a tiered system to control which options strategies you can execute. Each level unlocks additional strategies with higher complexity and risk. In an IRA, the maximum level is lower than in taxable accounts because margin is not available.
The naming conventions vary by broker. Some use Levels 1-5, others use Tiers 1-3, and some use descriptive names. The underlying permissions are similar across brokers.
Level 1: Covered Calls
What you can do: Write (sell) call options against stock you own in the account.
Risk profile: Your stock may be called away at the strike price. You keep the premium regardless.
Requirements: Basic options knowledge, any experience level. Most applicants are approved immediately.
IRA suitability: Excellent. This is the starting point for retirement income from options.
Level 2: Covered Calls + Cash-Secured Puts + Long Options
What you can do: Everything in Level 1, plus sell cash-secured puts and buy calls or puts outright.
Risk profile: Cash-secured puts require full collateral. Long options risk is limited to premium paid.
Requirements: Some options trading experience, moderate risk tolerance selected on the application.
IRA suitability: This is where most IRA options traders should target. It unlocks the wheel strategy (alternating between puts and calls) and protective puts for hedging.
Level 3: Spreads
What you can do: Everything in Levels 1-2, plus vertical spreads (bull put spreads, bear call spreads), iron condors, and other defined-risk multi-leg strategies.
Requirements: Demonstrated spread trading knowledge, higher experience thresholds. Some brokers require a minimum account balance ($5,000-$25,000).
IRA suitability: Strong. Spreads are capital-efficient and defined-risk, making them ideal for IRAs where capital is limited by contribution caps. A bull put spread ties up $300-500 in collateral versus $10,000+ for a cash-secured put on the same underlying.
Level 4+: Not Available in IRAs
Levels 4 and 5 at most brokers involve naked options, uncovered straddles, and strategies requiring full margin. These are universally prohibited in IRA accounts regardless of your experience or account size.
Broker-by-Broker Comparison
| Broker | Covered Calls | CSPs + Long Options | Spreads | Max IRA Level |
Note: Schwab and TD Ameritrade merged their platforms. The naming conventions may differ but permissions are equivalent.
How to Get Upgraded
If you're currently at Level 1 and want Level 2 or 3:
Build a track record. Execute 10-20 covered call trades successfully over 3-6 months. This demonstrates competence.
Reapply accurately. Update your options application with current experience. Many people understate their knowledge on the initial application out of caution.
Call your broker. Speak to the options desk directly. Explain your strategy (wheel strategy, spread trading for income) and your understanding of the risks. A phone conversation often accelerates approval that online forms delay.
Match your profile. Brokers look for consistency between stated objectives (income), risk tolerance (moderate), experience (intermediate), and the strategies you're requesting. Make sure these align on your application.
Getting to Level 2 is sufficient for running the wheel strategy with OptionsPilot. Level 3 adds spreads for capital efficiency. Most retirement-focused traders don't need anything beyond Level 3.