How to Trade Options on Robinhood
Opening an Options Account on Robinhood
To trade options on Robinhood, you must first request options approval from within the app. Robinhood grants options access in levels, starting with Level 1 (covered calls and cash-secured puts only) and moving up to Level 3 (spreads and other multi-leg strategies). You cannot trade any options contract until your account reaches the level required for that strategy.
Open the Robinhood app, go to your Account menu, select Investing, then Options. Tap "Request Options" and answer Robinhood's questions about your investment experience, income, and net worth. Robinhood reviews your answers and typically responds within minutes to a few hours, though approval is not may provide. If denied, you can request again after 30 days.
Once approved, options become available in the same search and trading interface you use for stocks. You do not need to fund a separate account or sign additional paperwork beyond what the app collects.
Key Takeaways
- Robinhood grants options trading in levels: Level 1 allows covered calls and cash-secured puts, Level 2 adds spreads, and Level 3 adds other multi-leg strategies.
- You request options approval through the Account menu in the app by answering questions about your experience and finances; approval typically takes minutes to hours.
- Options contracts on Robinhood represent 100 shares of the underlying stock, so one contract controls $5,000 worth of a $50 stock.
- Robinhood charges no commission on options trades, but you pay the bid-ask spread and may face assignment risk if you sell calls or puts.
- Expiration dates range from days to months ahead, and Robinhood automatically closes or rolls positions approaching expiration if you do not act first.
Understanding Options Contracts and Expiration Dates
An options contract on Robinhood represents the right to buy or sell 100 shares of a stock at a set price (the strike price) on or before a set date (the expiration date). A call is the right to buy; a put is the right to sell. When you buy a call or put, you pay a premium upfront. When you sell a call or put, you collect that premium but take on the obligation to buy or sell if the buyer exercises.
Expiration dates on Robinhood range from the current week out to several months. Most options expire on Friday afternoons at 4 p.m. Eastern time. As expiration approaches, the time value of the contract shrinks, which means the premium you paid (if you bought) or collected (if you sold) decays. Robinhood sends notifications as expiration nears and will automatically close or roll your position if you do not act by the deadline.
The strike price is the price at which you can exercise the contract. A call is "in the money" if the stock price is above the strike; a put is "in the money" if the stock price is below the strike. In-the-money contracts are more expensive to buy and more valuable to sell because they have intrinsic value in addition to time value.
Placing Your First Options Trade
Search for the stock you want to trade in the Robinhood app. Tap the stock name to open its detail page, then scroll down and tap "Trade Options" or the options icon. You will see a list of available expiration dates; select the date you want. The app then shows you all available strike prices for that date, with bid and ask prices for both calls and puts.
Tap the call or put you want to trade. A ticket appears showing the bid price (what you will receive if you sell) and the ask price (what you will pay if you buy). Enter the number of contracts you want to trade—remember that one contract controls 100 shares—and review the total cost or credit. Tap "Review" to confirm the order, then "Place Trade" to send it to the market.
Your order will fill at the bid or ask price if there is a buyer or seller on the other side. Robinhood does not may provide a fill, and if the market moves quickly, your order may not fill at all. Once filled, the contract appears in your Positions tab, where you can see its current value, the premium you paid or collected, and your profit or loss.
Managing Positions and Handling Assignment
After you buy or sell an options contract, you can close it at any time before expiration by selling (if you bought) or buying back (if you sold) the same contract. Open your Positions tab, find the contract, and tap it. The app shows the current bid and ask prices. Tap "Sell to Close" (if you own the contract) or "Buy to Close" (if you sold it), enter the number of contracts, and place the trade.
If you sell a call or put and the buyer exercises it, you face assignment. If you sell a call and it is assigned, you must sell 100 shares of the stock at the strike price, even if the current market price is higher. If you sell a put and it is assigned, you must buy 100 shares at the strike price, even if the current market price is lower. Robinhood handles the mechanics automatically—the shares appear in or leave your account, and the cash adjusts accordingly—but the financial outcome is yours to manage.
To avoid unwanted assignment, close your position before expiration or ensure you have the cash (for puts) or shares (for calls) to cover the obligation. Robinhood will not let you sell a cash-secured put unless you have the cash set aside, and will not let you sell a covered call unless you own the shares.
Spreads and Multi-Leg Strategies
A spread is a trade that involves buying and selling options at the same time—for example, buying a call at one strike and selling a call at a higher strike on the same expiration date. Spreads reduce your upfront cost (or increase your credit) compared to buying or selling a single contract, but they also cap your maximum profit or loss.
Robinhood requires Level 2 approval to trade spreads. To place a spread, search for the stock, tap Trade Options, select the expiration date, then tap "Spread" at the top of the strike list. The app shows you the available spread types—call spreads, put spreads, and others—and lets you select the strikes you want. The ticket shows the net debit (cost) or credit you will receive. Review and place the trade as you would a single-leg trade.
Spreads are more complex than single contracts because both legs have separate expiration dates and assignment risk. If one leg is assigned before the other expires, you may end up with an unintended position. Robinhood handles the mechanics, but you should close spreads manually rather than let them expire, especially if one leg is in the money.
Costs, Fees, and the Bid-Ask Spread
Robinhood charges no commission on options trades. However, you pay the bid-ask spread—the difference between the price a buyer will pay (bid) and the price a seller will accept (ask). For liquid options on popular stocks, the spread may be a few cents. For less liquid options, the spread can be much wider, meaning you pay more to buy and receive less to sell.
Your total cost to buy an options contract is the ask price times 100 times the number of contracts. If you buy one call at an ask price of $2.50, you pay $250 ($2.50 × 100 × 1). If you sell that same call later at a bid price of $2.40, you receive $240. The $10 difference is your cost of the bid-ask spread.
Robinhood also charges interest if you use margin to buy options, though most account types do not have margin enabled by default. There are no other fees for holding or closing options positions.
Tax Reporting and Record-Keeping
Options trades are taxable events. When you close a position at a profit, you owe capital gains tax. When you close at a loss, you can deduct the loss (subject to wash-sale rules). If you are assigned on a call you sold, the sale of the shares is a taxable event. If you are assigned on a put you sold, the purchase of the shares becomes your cost basis for those shares.
Robinhood provides a tax document (Form 8949) at the end of the year listing all your options trades and their outcomes. You will need this document to file your taxes. Keep your own records of each trade—the date, the contract, the price, and the number of contracts—because Robinhood's records may not match your broker's cost basis calculation exactly.
Short-term capital gains (positions held less than one year) are taxed as ordinary income. Long-term capital gains (positions held more than one year) receive preferential tax rates. Most options traders hold positions for days or weeks, so most gains are short-term.
Frequently Asked Questions
What is the minimum account balance to trade options on Robinhood?
Robinhood does not publish a minimum balance requirement for options trading. However, you must have enough cash or buying power to cover the cost of the trade. For cash-secured puts, you must have the full strike price times 100 times the number of contracts in cash available. For covered calls, you must own the shares.
Can I trade options on stocks I do not own?
Yes, you can sell calls and puts on stocks you do not own, but Robinhood requires Level 2 approval and you must have the cash to cover the obligation if assigned. You cannot buy calls or puts without owning the stock—you can buy any call or put you want, and Robinhood will not stop you.
What happens if I do not close my options position before expiration?
Robinhood automatically closes out-of-the-money options at expiration for zero value. For in-the-money options, Robinhood automatically exercises calls you own and puts you own, and automatically assigns calls and puts you sold. This can result in unexpected stock positions or cash movements in your account.
How do I know if my options order filled?
Open the Robinhood app and go to your Account menu, then History. You will see a list of all your trades, including options, with the date, time, and price. Filled trades appear immediately; unfilled orders may take a few seconds to update. You can also check your Positions tab to see active contracts.
Can I trade options after hours on Robinhood?
No. Options trading on Robinhood is available only during regular market hours, 9:30 a.m. to 4 p.m. Eastern time, Monday through Friday. You can place orders outside these hours, but they will not fill until the market opens.