Selling options on Robinhood: the basic steps

To sell an option on Robinhood, open the app, search for the stock or ETF you want to sell an option on, tap the option chain, choose the contract you want to sell, tap "Sell", enter how many contracts you want to sell, review the price Robinhood is quoting you, and confirm the trade. The cash from the sale goes into your account when ready, but you are now obligated to buy or sell the underlying shares if the person who bought your option chooses to exercise it.

Robinhood requires you to have an options trading level before you can sell. You request this level when you open your account or later in the app settings. The level you need depends on what you want to sell: Level 2 lets you sell covered calls and cash-secured puts, while Level 3 and above allow naked puts and other more complex strategies. Robinhood will ask about your income, net worth, and trading experience before granting a level.

The mechanics differ slightly depending on whether you are selling a call or a put. When you sell a call, you are agreeing to sell shares at a set price if the buyer exercises. When you sell a put, you are agreeing to buy shares at a set price if the buyer exercises. Both happen through the same "Sell" button in the option chain, but the obligation you take on is different.

Key Takeaways

  • You must request an options trading level in your Robinhood account settings before you can sell any option, and the level you receive depends on your income, net worth, and experience.
  • Selling a call means you agree to sell shares at a set price if the buyer exercises; selling a put means you agree to buy shares at that price if the buyer exercises.
  • The money from selling an option lands in your account right away, but you remain obligated to fulfill the contract if the buyer exercises it before expiration.
  • Robinhood quotes you a price for each contract you want to sell, and you can accept or reject that quote before the trade goes through.
  • You can close out a position before expiration by buying back the option you sold, which ends your obligation.

Understanding options trading levels on Robinhood

Robinhood assigns options trading levels based on your answers to questions about your financial situation and experience. Level 1 is read-only and does not let you trade options at all. Level 2 lets you sell covered calls (calls backed by shares you own) and cash-secured puts (puts backed by cash in your account). Level 3 lets you sell naked puts and buy calls and puts. Level 4 and above allow spreads and other multi-leg strategies.

To request a level, go to your account settings, find the options section, and answer Robinhood's questions about your annual income, net worth, years of trading experience, and what strategies you plan to use. Robinhood does not publish the exact thresholds it uses to approve each level, so approval is not may provide even if you meet certain financial benchmarks. You can request a higher level at any time, and Robinhood will review your request.

Your level determines what you can sell, not what you can buy. Even at Level 2, you can buy calls and puts; you just cannot sell naked calls or puts. This matters because selling is where the obligation lives — buying an option gives you a right, but selling gives you a duty.

How to find and select the option contract you want to sell

Open Robinhood, search for the stock or ETF ticker, and tap the "Options" tab below the stock price. You will see an options chain: a table showing all available contracts for that stock, organized by expiration date and strike price. Each row shows a call and a put side by side, with bid and ask prices for each.

The bid price is what Robinhood will pay you if you sell right now. The ask price is what you would pay if you were buying. When you sell, you get the bid price. The wider the gap between bid and ask, the less liquid the contract is, and the harder it will be to sell or close out your position later.

Tap the contract you want to sell. A detail screen opens showing the strike price, expiration date, and current bid and ask. Tap "Sell" to move forward. You will then enter the number of contracts you want to sell (each contract represents 100 shares) and review the total price Robinhood is quoting you before you confirm.

What happens after you sell an option

Once your trade settles, the cash from the sale is yours to keep or spend. But you now have an open position: an obligation to buy or sell shares if the option buyer exercises their right. This obligation lasts until the option expires or you close the position by buying back the same contract.

If you sold a call and the stock price rises above the strike price, the buyer may exercise and you will have to sell them 100 shares per contract at the strike price, even if the stock is now worth more. If you sold a put and the stock price falls below the strike price, the buyer may exercise and you will have to buy 100 shares per contract at the strike price, even if the stock is now worth less.

You do not have to wait until expiration. At any time before expiration, you can buy back the option you sold (called "closing" the position) by tapping the position in your portfolio, tapping "Sell to Close", and confirming the trade. The price you pay to close may be higher or lower than the price you received when you sold, depending on how the stock has moved and how much time is left until expiration.

Margin requirements and cash reserves for selling options

When you sell a covered call, Robinhood requires you to own 100 shares per contract you sell. The shares act as collateral, so Robinhood does not tie up additional cash. When you sell a cash-secured put, Robinhood requires you to have enough cash in your account to buy 100 shares per contract at the strike price. That cash is held in reserve and you cannot spend it, but you still own it.

If you have a margin account and your brokerage firm approves you for Level 3 or higher, you can sell naked puts (puts not backed by cash) or naked calls (calls not backed by shares). Robinhood will calculate a margin requirement for each position based on the strike price and current stock price. If your account value drops and you no longer meet the margin requirement, Robinhood may force you to close the position or deposit more cash.

Selling options without the required collateral or margin is not possible on Robinhood — the app will not let you place the trade if you do not have the funds or shares in place. This is a safety feature that prevents you from taking on obligations you cannot meet.

Closing or rolling an option position before expiration

You do not have to hold an option until expiration. If you want to exit early, go to your portfolio, find the open option position, and tap it. You will see a "Sell to Close" button (if you sold the option) or "Buy to Close" button (if you bought it). Tap that button, review the price Robinhood is quoting, and confirm to close the position.

Closing early can make sense if the option has lost value and you want to lock in your profit, or if the stock has moved against you and you want to cut your loss. The price you receive or pay depends on the current bid-ask spread and how much time is left until expiration.

Rolling is a more advanced move: you close one option and sell another one with a later expiration date or different strike price in the same transaction. Robinhood does not have a dedicated "roll" button, so you have to close the old position and open the new one as two separate trades. This means you pay two sets of commissions (though Robinhood does not charge per-trade commissions, the bid-ask spread applies twice).

Tax reporting and record-keeping for option sales

When you sell an option on Robinhood, the transaction is reported to the IRS on Form 1099-B. If the option expires worthless, you have a capital loss equal to the premium you received. If the option is exercised, the cost basis of the shares you buy or sell is adjusted by the premium you received.

Robinhood provides a tax report in your account that summarizes your option trades, but you should keep your own records of each trade: the date, the contract, the number of contracts, the price you received, and whether it expired, was closed, or was exercised. If you exercise an option or it is exercised against you, the resulting stock purchase or sale is a separate taxable event.

Options trading can create complex tax situations, especially if you sell multiple contracts, roll positions, or exercise options. Consider consulting a tax professional if your option activity is significant or if you are unsure how to report your trades.

Frequently Asked Questions

What is the minimum amount of money I need to sell options on Robinhood?

There is no stated minimum account balance to sell options on Robinhood, but you must have enough cash or shares to meet the collateral or margin requirement for the specific option you want to sell. For a covered call, you need 100 shares per contract. For a cash-secured put, you need the strike price times 100 in cash. For naked positions, you need to meet Robinhood's margin requirement, which varies by contract.

Can I sell options on stocks I do not own?

Yes, but only if you have the right options trading level and collateral. Selling a covered call requires you to own the shares. Selling a naked call or put (Level 3 or higher) does not require you to own shares, but you must have the cash or margin to cover the obligation if the option is exercised. Robinhood will not let you place a trade without the required collateral.

What happens if I do not have enough cash when an option is exercised?

Robinhood will not let you sell an option without the required collateral in place, so this situation should not occur. If you sell a cash-secured put, the cash is reserved and cannot be spent. If you sell a naked put on margin and your account value drops, Robinhood may force you to close the position or deposit more cash before the option is exercised.

Can I sell options after hours on Robinhood?

No. Options trading on Robinhood follows standard market hours: 9:30 a.m. to 4 p.m. Eastern time on weekdays when the market is open. You cannot place, modify, or close an option trade outside these hours. You can place an order to sell an option during market hours that will execute at the open the next day, but you cannot execute a trade after the market closes.

What fees does Robinhood charge for selling options?

Robinhood does not charge per-trade commissions for options. You pay the bid-ask spread, which is the difference between what Robinhood will pay you to sell and what you would pay to buy the same contract. The spread varies by contract liquidity and can range from a few cents to several dollars per contract. There are no other fees for selling options on Robinhood.