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How to trade options on Robinhood

Take advantage of basic and advanced options strategies on an app that might not be advanced enough for all traders.

Trading app Robinhood was designed for everyday investors, but it allows investors to do more advanced trading. That includes trading options.

In fact, Robinhood offers two approval levels for trading options, requiring personal and financial information to determine whether you’re best suited for basic options trades or ready for advanced strategies.

How to enable options

Before you can start trading stock or exchange-traded fund (ETF) options on Robinhood, you need to enable options trading.

Follow these steps to enable options trading on Robinhood’s web app for desktops:

  1. Log in to your Robinhood account and select Account and then Settings from the navigation menu.
  2. Select Investing from the menu on the left. If you aren’t signed up for options trading, you should see a button labeled Get Options Trading.
  3. Verify your account login credentials.
  4. Select Continue and answer a few qualifying questions. Robinhood requires customers wishing to trade options to disclose investment experience and knowledge and some financial information.
  5. Review your investment profile and your application. Choose Accept when finished.

Follow these steps to enable options trading on mobile:

  1. Log in to your Robinhood account. Then, select the silhouette icon at the bottom of the screen.
  2. Open the hamburger icon in the top left corner and select Investing.
  3. Scroll down, and select Enable Options Trading. Then, select Sign Up.
  4. Answer the necessary qualifying questions and provide information about your option trading experience.
  5. Confirm your investment profile and accept the options agreement.

Robinhood will either instantly approve or reject your application depending on the answers you provided and your investment profile. Robinhood requires users to have some stock trading experience before they can trade options.

Level 2 vs. Level 3 accounts

Robinhood has two levels of options trading: Level 2 and Level 3. New options traders will start in Level 2.

Options strategies with Level 3 are much more advanced with considerably higher risk. Robinhood requires traders to have some experience trading options before qualifying for Level 3.

Here’s the difference between the two levels:

Level 2Level 3
Buying calls and puts
Selling covered calls
Selling cash covered puts
Exercising options
Buying and selling spreads

Head back to your Investing account details under Settings to see which options level you’ve been approved for.

You can request to upgrade to Level 3 at any time, but your application may not be approved until you meet Robinhood’s internal eligibility criteria.

We reached out to Robinhood to get an idea of what’s needed to be approved for Level 3. We were told that customers need to go through a manual review process, which includes someone from the Robinhood brokerage operations team reaching out to test your knowledge regarding options trading.

How to trade options

Now that you’ve got options trading enabled in your account, you can start trading. Follow these steps to trade options.

  1. Select the magnifying glass to browse securities, and enter the ticker symbol of the stock or ETF with which you want to trade options.
  2. Select Trade [Name] Options to enter the options trading screen. On mobile, select Trade and then Trade Options.
  3. Select an expiration date, and choose either Buy or Sell, and Call or Put.
  4. Select your trade and enter the number of contracts.
  5. Review your order and submit.

Strategies for Level-2 investors

Robinhood offers basic options strategies to investors approved for Level 2.

OptionWhat it isWhen to use it
Buying a callBuying the right to buy shares of a stock at strike price before its expiration dateIf you’re bullish on a stock and believe the price will rise
Selling a covered callSelling call options while simultaneously owning an equal number of a stock’s sharesIf you don’t think the stock price will rise in the short term and you want to generate income
Buying a putBuying the right to sell shares of a stock at strike price before an expiration dateIf you’re bearish on a stock and believe the price will fall
Selling a cash-covered putEarning a premium from selling a put and having cash to cover obligation to buy underlying assetIf you want to buy shares of stock at a low price

Options strategies: Straddles and strangles

Two additional strategies for trading options on Robinhood are straddles and strangles. The difference comes down to the number of calls and puts and strike price:

  • Straddles are the purchase of equal numbers of calls and puts with the same strike price and expiration date.
  • Strangles involve buying a different number of calls and puts with different strike prices and the same expiration date.

Among the many trading strategies popular among investors, straddles and strangles can be useful when you’re trading options on Robinhood. They offer safer hedges if a call falls below the strike price or a put rises above the strike price.

Strategies for Level-3 investors

Robinhood extends more advanced options strategies to those approved for Level 3.

OptionWhat it isWhen to use it
Call credit spreads
  • Buying calls at a higher strike price
  • Selling an equal number of calls at a lower strike price
If you think a stock’s underlying price will stay the same or fall before a specific date
Put credit spreadsSelling a put at a higher strike price and buying a put at a lower strike priceIf you think a stock’s underlying price will stay the same or rise before a specific date
Call debit spreadSelling a call at a higher strike price and buying a call at a lower strike priceIf you think a stock will rise even slightly before a specific date
Put debit spreadsBuying a put at a higher strike price and selling a put at a lower strike priceIf you think a stock will fall even slightly before a specific date
Iron condorsCombining two calls and two puts with the same expiration date and different strike pricesIf you think a stock’s price will stay the same
Calendar spreadsBuying long-term options and selling near-term options with the same strike price and different strike datesIf you think a stock’s price will stay the same
Iron butterflyCombining two call credit spreads and two put credit spreads with different strike prices and the same expiration dateIf you think a stock’s price will stay the same

Does Robinhood allow box spreads?

No. Robinhood says this complex strategy involving arrays of calls and puts carries a hidden dividend risk can result in you losing more money on a contract than you expect.

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Key options terms

Two key terms you’ll want to understand when trading options on Robinhood are calls and puts:

  • Call options. Traders buy call options hoping a stock’s price will rise. Call option buyers can purchase shares of an asset from a seller at the strike price until an option contract’s expiration date.
  • Put options. By contrast, option traders sell put options hoping the price will fall. Put option buyers sell shares of assets to a buyer at the strike price until an option contract’s expiration date.

Other terms you’ll want to put under your belt before trading options on Robinhood include:

  • Options contract. A contract that gives buyers the right — but not the obligation — to buy or sell 100 shares of an underlying asset at a specific price or date.
  • Strike price. The fixed price at which you, as owner of the option, have the right to buy or sell an underlying asset.
  • Expiration date. Last date that an options contract is valid — often on the third Friday of the contract month.
  • Premium. Price a buyer gives a seller for an options contract.

Pros of trading options on Robinhood

While the convenience of mobile trading on a device is convenient, here are other perks of trading options with Robinhood:

  • $0 commission. A draw for investors is Robinhood’s free options trading.
  • Simple user interface. Even beginner investors will find the app is easy to navigate.
  • Trade multiple strategies. The app offers the flexibility to trade multiple options at the same time.

Cons of trading options on Robinhood

Robinhood struggles with poor customer service ratings online, along with a handful of other potential drawbacks to consider:

  • Limits select stocks. The app recently landed in trouble in early 2021 for its temporary halt on trading “meme stocks” like GameStop (GME), citing issues with collateral.
  • Limited analytical data. More experienced traders might find Robinhood’s basic education options, customization and filters lacking when compared with competitors like TD Ameritrade and Charles Schwab.
  • Frequent glitches. Robinhood investors report tech issues that hamper trades and account access, including a glitch as recent as January 2020.

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Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

Bottom line

Robinhood attempts to mitigate the risk of trading options by requiring would-be investors to submit personal and financial details for approval at one of two levels. Depending on the level you’re approved for, you may have access to either basic or advanced strategies.

If this popular app isn’t robust enough for your expertise or you’d rather keep your own options open, compare other options trading platforms to find the best fit with your comfort level and goals.

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