How to trade options on Robinhood: A beginner's guide (2024)

Robinhood’s intuitive and beginner-friendly platform, combined with zero commissions and no per-contract fees, makes it an attractive option for new traders and investors venturing into options trading.

At the same time, Robinhood caters to more experienced traders with competitive margin rates, advanced charts and sophisticated tools like Simulated Returns, which help in evaluating potential strategies.

Whether you’re just starting out or looking for a reliable platform to execute more advanced options strategies, Robinhood offers a comprehensive set of tools to suit your needs.

In this guide, you’ll learn how to trade options on Robinhood, explore the strategies and tools available, and weigh the pros and cons of using this platform.

How to trade options on Robinhood

To get started trading options on Robinhood, you need to open and fund an account. Robinhood offers options trading in its brokerage accounts and Level 2 options trading in its individual retirement accounts (IRAs), so you’ll need to choose an account based on your goals. Once you’ve opened and funded your account, you’ll need to enable options trading.

Here are four steps that offer more detail on how this entire process works.

1. Open and fund a Robinhood account
2. Enable options trading in your account
3. Select and trade options
4. Closing options trades

Step 1. Open and fund a Robinhood account

Robinhood’s account opening process is as simple and straightforward as it gets. Follow these steps to sign up:

1. Go to Robinhood’s website or app and select Sign up, or select the Go to site button below.
2. Provide your email, password, name, phone number, date of birth, address, citizenship status and Social Security number.
3. Answer a few questions about investing and provide details about your employment.
4. Review Robinhood’s agreements and link a debit card or bank account fund your Robinhood account.

Once you’ve opened a Robinhood brokerage account, you can then apply for a Robinhood IRA if you want to trade options in an IRA. Profits generated from options trading within an IRA are tax-deferred or tax-free, depending on the type of IRA — traditional IRA or Roth IRA. However, a brokerage account offers more liquidity, in that you can withdrawal money at any time without penalty. Unlike IRAs, brokerage accounts also have no contribution limits and allow for margin trading.

Step 2. Enable options trading in your account

Trading options requires approval on Robinhood. To enable options trading:

1. Log in to your Robinhood account and navigate to your account menu. Select Account from the navigation menu on the web browser or select the silhouette icon at the bottom of the screen on the mobile app
2. Select Investing and then scroll down to Options trading. The Investing section is under the hamburger icon in the top left corner on mobile.
3. Select Enable options trading and then Continue to start the application.
4. Answer the necessary qualifying questions and provide information about your option trading experience.
5. Review and confirm your investor profile and accept the options agreement.

Robinhood requires users to have stock trading experience before they can trade options and will either instantly approve or reject your application depending on your investment profile and the answers you provide during your application. Robinhood will approve your account for either Level 2 or Level 3 options trading, permitting either basic or advanced options strategies.

Step 3. Select and trade options

Robinhood’s user-friendly design and streamlined trading experience extends to its options trading. But it’s important to take some time to explore and familiarize yourself with Robinhood’s options trading process so you can evaluate the risk/reward, define options parameters and fully understand the costs before you get started.

Follow these steps to select and complete an options order:

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 and then Trade options to enter the options trading screen.

   

3. Use Robinhood’s options strategy builder or browse by expiration date.

   

4. Select a trade to view details like bid and ask price, chance of profit and other stats. To move forward with that trade, select Buy or the + symbol from within the contract.

   

5. Enter the number of contracts, choose market order or enter a limit price.

   

6. Review your order and submit.

Step 4. Closing options trades

If you don’t act upon the contract before the expiry date, it simply expires. You can also close your trade ahead of the expiry date if the option has reached your predefined profit target or if the option has moved against you and reached your predetermined loss limit. Here’s how to close your options trade on Robinhood:

1. Log in to your account and select the order you want to close.
2. Select Trade and Close.
3. Select the number of contracts you want to close.
4. Review the order and execute your trade.

Robinhood has two options trading levels

Robinhood has two levels of options trading: Level 2 and Level 3. New options traders will start in Level 2, which offers basic options strategies.

Robinhood’s Level 2 strategies

Robinhood offers the following basic options strategies to investors approved for Level 2:

• Long call
• Covered call
• Long put
• Short put

Check your options trading level in your Robinhood account details under Settings. If you’re Level 2, 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 may 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.

Robinhood’s Level 3 strategies

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

Available advanced options strategies include:

• Long straddle
• Call debit spread and put debit spread
• Call credit spread and put credit spread
• Long call calendar
• Long put calendar and short put calendar
• Long call condor and short call condor
• Long put condor and short put condor
• Long iron condor and short iron condor
• Long call butterfly and short call butterfly
• Long put butterfly and short put butterfly
• Long iron butterfly and short iron butterfly
• Put front ratio
• Call back ratio and put back ratio

How to trade options on Robinhood for beginners

Trading options on Robinhood is straightforward, making it a great entry point for beginners interested in options trading. Robinhood’s platform simplifies the process by providing clear, easy-to-understand interfaces, along with educational resources that help demystify the complexities of options trading.

For beginners, it’s essential to start with basic options trading strategies, such as buying calls or puts, which allow you to bet on the stock going up or down.

As you gain more experience, you can explore more advanced strategies like spreads, but it’s wise to start with small trades to familiarize yourself with how options work and the risks involved. Just like any other investment, get educated and take the time to understand options trading.

Robinhood’s options fees

Robinhood’s one of just a handful of brokers that doesn’t charge options commissions, contract fees or exercise and assignment fees, making it one of the most affordable platforms for options traders.

Pros and cons of trading options on Robinhood

Robinhood’s user-friendly trading platform simplifies the options trading experience but that platform has some downsides too.

Pros

• Low trading costs. Robinhood charges no options commissions, no options contract fees and no exercise and assignment fees.
• Simple user interface. Robinhood’s streamlined and easy-to-use interface simplifies the trading and investing experience.
• Trade multiple strategies. Robinhood offers numerous options trading strategies depending on your experience level.

Cons

• Limited analytical data. Robinhood’s trading tools are not as robust as other platforms on the market, including big brokers like Charles Schwab and E*TRADE and mobile-first apps like Webull and Moomoo.
• Risk of outages. Robinhood has experienced occasional outages and technical issues in the past, particularly during periods of high market volatility. These outages can prevent users from accessing their accounts or executing trades, potentially causing frustration and financial losses.
• Order execution. Some users have reported issues with Robinhood’s order execution, including delayed fills and poor trade execution during periods of high market volatility. This can result in missed trading opportunities or unfavorable pricing for options trades.

Compare Robinhood to other options trading platforms

Frequently asked questions

What is the minimum deposit for Robinhood options trading?

Robinhood doesn’t have minimum deposit requirements to trade options. However, the Financial Industry Regulatory Authority (FINRA) requires that you have the lesser of at least $2,000 or 100% of the security’s purchase price in your account to trade on margin.

Why can’t I trade options on Robinhood?

Robinhood must approve your account for you to enable options trading. If you’re unable to trade options on Robinhood and your investor profile is current, it’s likely because you’re ineligible for options trading.

Written by

Matt Miczulski

Editor, Investments

Matt Miczulski is an investments editor at Finder. With over 450 bylines, Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions. Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University. See full bio

Matt's expertise

Matt has written 205 Finder guides across topics including:

• Trading and investing
• Broker and trading platform reviews
• Money management