Fidelity Level 2 Options Requirements
Fidelity is a well-known brokerage firm that offers its clients the ability to trade options. However, in order to access certain options trading capabilities clients must meet certain requirements set by the firm. We will take a quick look at some of these option levels, explain the reasons why they exist, plus some tips to help you fulfill Fidelity level 2 options requirements.
Level 1 & 2 Options when trading stocks
Level 1 is the option to sell covered calls and cash secured puts. Covered calls means that you must own shares that you want to sell a covered call on as they may get called away if you get assigned. You can’t lose anything more than these shares you own on this trade.
Likewise you can also sell cash secured puts, but you must have the required funds in your account when you make this trade to purchase the shares in the event you get assigned.
Again, you can’t lose any more than that. In fact, in both cases you are not really 'losing' anything, you have agreed to these trades and that is how they work. You know your maximum risk up front and must be able to fulfil it before you are allowed to make a trade.
Level 2 options mean they are a more advanced options trading strategy and should only be used by more experienced traders.
However, they can simply mean the ability to buy calls or puts which may seem like the most straightforward option trade you can make. The reason they are considered more sophisticated is that your risk is unlimited.
If the trade goes against you then in theory there is possibly no limit to how much you can lose.
That’s why Fidelity has a set of requirements that must be met before you can access level 2 options trading.
Fidelity's Level 2 Options Requirements
The main requirement is that you must have a margin account with Fidelity which means you can borrow money from the brokerage firm in order to trade options. You cannot get Level 2 option access with a cash account.
This is necessary for level 2 options trading because it allows the trader to purchase multiple options contracts in a single trade, which can become expensive to cover all eventualities in the trade without having access borrowed funds from the broker.
After this the requirements are less set in stone and if you speak to someone from Fidelity you might be told given different information.
It seems that having a minimum of $25,000 in your margin account is NOT a requirement for Level 2 options. This is a common requirement to become a day trader.
Users report that you also need to have $50,000 as liquid net worth to be approved and to have 2 years options trading experience.
Fidelity does not specify a specific amount of experience that is required, but they do require that clients have a basic understanding of options trading and the risks involved before they can access level 2 options trading.
Lastly, clients will be required to take a short online test about the level 2 options trading, when you pass the test you will have access to level 2 options trading.
This all sounds fine but several users say they have run into problems trying to get approved and the accepted solution to this sounds counter intuitive.
If you want to sell puts, you need to tell them that you are an aggressive trader! Bizarre but true, they probably won’t approve you otherwise. Users with lots of trading experience have reported they got rejected multiple times until they selected “most aggressive” as the strategy they use when applying.
Summary of Fidelity Level 2 Options Requirements
Fidelity has implemented a set of requirements that must be met before a client can access level 2 options trading.
These requirements include:
- having a margin account with Fidelity,
- $50,000 in liquid net worth
- 2 years experience trading options,
- passing an online test
- and, oddly, using a very aggressive trading strategy.
These requirements are in place to ensure that clients have the necessary knowledge and resources to engage in level 2 options trading and to minimize the risk of potential losses.