Opening a Brokerage Account
Before you can trade a single option, you need the right brokerage account set up correctly. The type of account, approval tier, and broker you choose will directly impact what strategies you can execute and how efficiently you can grow your capital.
Cash Account vs. Margin Account – Options Tiers
A cash account requires you to pay the full purchase price for any security. You cannot borrow money from the broker (no margin). In a cash account, options buying is permitted (you pay the full premium), and you can sell covered calls against stock you own. However, you cannot sell naked puts or credit spreads because those require margin as collateral. Cash accounts are also subject to settlement rules — cash from a sale takes 1–2 business days to settle before you can reuse it, which can limit trading frequency.
A margin account allows you to borrow capital from your broker (up to a set limit) and to use the full range of options strategies. Most serious options traders use a margin account because it enables spread trading, defined-risk credit strategies, and more capital-efficient position management. The trade-off is that margin amplifies losses just as it amplifies gains — and brokers can issue a margin call requiring you to deposit more funds or close positions if your account value falls below the maintenance margin requirement.
| Options Level | Strategies Allowed | Account Requirement |
|---|---|---|
| Level 1 | Covered calls, cash-secured puts | Cash or Margin |
| Level 2 | Long calls & puts, debit spreads | Cash or Margin |
| Level 3 | Credit spreads, iron condors, butterflies | Margin required |
| Level 4 | Naked puts (short puts without full cash cover) | Margin + higher requirements |
| Level 5 | Naked calls, full unlimited strategies | Portfolio margin |
ℹ️ What Level Should You Apply For?
Apply for Level 3 (credit/debit spreads) when opening your account. This unlocks the most powerful risk-defined strategies while keeping your risk manageable. Most brokers will approve Level 3 if you have some trading experience and a reasonable account balance. Be honest on the application — if you're denied, you can request a review after demonstrating trading history.
🔑 Pattern Day Trader Rule
If you execute 4 or more day trades in 5 business days with a margin account, FINRA classifies you as a Pattern Day Trader (PDT). This requires maintaining a minimum $25,000 account balance at all times. If you fall below this threshold, you'll be restricted to 3 day trades per 5 days until you deposit more funds. Swing traders and options sellers who hold positions overnight are generally not affected by PDT rules.
How Much Money Do I Need to Be Successful?
This is the question every aspiring trader asks, and the honest answer is: it depends on your strategy. For buying long calls and puts, you can start with as little as $500–$2,000 — but your position sizes will be tiny and one bad trade can wipe out a significant percentage of your account. For selling credit spreads (our preferred approach), you'll need enough capital to comfortably hold 3–5 positions simultaneously without over-leveraging.
A realistic starting point for defined-risk credit strategies is $5,000–$10,000. With $5,000 and spreads that risk $300–$500 per trade, you can hold 3–4 positions and stay within the recommended 2–5% risk-per-trade rule. Below $5,000, you'll find it difficult to diversify adequately, and a single losing streak can dramatically impact your ability to continue trading. The $25,000 PDT threshold is the gold standard for active traders — it gives you maximum flexibility and the ability to day trade without restrictions.
Account Size vs. Suggested Starting Strategy
💡 The 2% Rule
Never risk more than 2% of your total account value on any single trade. With a $10,000 account, that's $200 max risk per trade. This keeps a string of losing trades from being account-threatening. Many professionals use 1% per trade, especially when starting out. Surviving to trade another day is more important than any single position.
Choosing a Broker
Not all brokers are equal for options traders. The key factors to evaluate are: commissions and fees, platform quality, options approval process, margin rates, and execution quality. For credit spread traders, per-contract commissions are a critical cost — if you're paying $0.65/contract and trading 4-leg iron condors regularly, those fees add up fast. Look for brokers charging $0.50 or less per contract.
| Broker | Options Commission | Platform | Best For |
|---|---|---|---|
| tastytrade | $1/contract to open, $0 to close | Excellent (options-first) | Active options sellers |
| TD Ameritrade / thinkorswim | $0.65/contract | Best-in-class (thinkorswim) | Advanced traders, chart users |
| Webull | $0 options + $0.55/contract | Good mobile app | Beginners, small accounts |
| Interactive Brokers | $0.25–$0.70/contract | Advanced, complex | Large accounts, professionals |
| Robinhood | $0 commission | Simple, limited tools | Absolute beginners only |
| Tradier | $0.35/contract | API-friendly | Algo traders, low-cost focus |
⚠️ Don't Choose a Broker Based Solely on Zero Commissions
Commission-free brokers often make money through payment for order flow (PFOF) — routing your orders to market makers who may give you slightly worse fills. On options trades, a $0.02–$0.05 per-share fill improvement on 100-share contracts is worth $2–$5 per contract — more than any commission you'd save. Quality of execution often matters more than commission rate.
💡 Our Recommendation
For beginners: tastytrade — it's built specifically for options traders, has excellent educational content, and its $0-to-close model means you never pay extra to take profits. For advanced traders who love charts: thinkorswim by TD Ameritrade remains the gold standard for technical analysis combined with options trading.
🎬 Featured Learning Videos
A comprehensive guide to getting started with options trading from account setup to first trade.