What you need to do before you can trade options on Robinhood

Robinhood does not let you trade options the moment you open an account. You have to request options approval, which means telling Robinhood you understand the risks and want permission to trade them. This is a separate step from funding your account or buying stocks.

To request options approval, open the Robinhood app, tap the account icon at the bottom right, scroll to "Account Settings," then tap "Options Approval." Robinhood will ask you a series of questions about your investment experience and knowledge. Your answers determine which options level you receive — Level 1 is the most restrictive, Level 4 the least. Most new traders start at Level 1 or Level 2.

Level 1 lets you sell covered calls and buy protective puts. Level 2 adds the ability to buy calls and puts. Level 3 adds spreads. Level 4 adds naked calls and puts. You can request a higher level later, and Robinhood usually responds within one business day. You do not need a minimum account balance to request approval, though some brokers do.

Key Takeaways

  • Request options approval in Account Settings before you can place any options trade, and Robinhood will assign you a level based on your answers about experience.
  • On the Trade tab, select a stock, swipe to the Options section, choose an expiration date and strike price, then tap Buy or Sell to open the order.
  • Options expire on the third Friday of each month, and Robinhood will close or exercise your position automatically if you do not act before expiration.
  • Each options contract represents 100 shares, so a premium of $2 means you pay or receive $200 per contract, not $2.
  • You can close a position before expiration by selling what you bought or buying back what you sold, which is how most options trades end.

How to find and select an options contract

Once you have approval, open the Robinhood app and tap the Trade tab at the bottom. Search for or select the stock you want to trade options on. Swipe left past the stock price and chart until you see the Options section.

The options chain shows two columns: Calls on the left, Puts on the right. Each row is a different strike price — the price at which you can buy (for a call) or sell (for a put) the stock. The columns to the right of each strike show the bid price (what buyers will pay right now) and the ask price (what sellers are asking right now). The difference between bid and ask is called the spread, and a wider spread means fewer traders are interested in that contract.

Tap the contract you want. Robinhood shows you the bid-ask spread, the expiration date, and how many days until expiration. Below that you see the premium — the price per share. Remember that one options contract equals 100 shares, so if the premium shows $2.50, you will pay or receive $250 per contract, not $2.50.

Placing a buy or sell order for an options contract

After you tap a contract, you see a screen with Buy and Sell buttons. Tap the one that matches what you want to do. If you are buying a call or put, tap Buy. If you are selling a call or put, tap Sell.

Next, Robinhood asks how many contracts you want. The default is 1. You can increase this number, but remember each contract controls 100 shares. If you buy 5 call contracts, you are controlling 500 shares of stock.

Then you choose your order type. Most traders use a limit order, which means you set the price you are willing to pay or accept. A limit order protects you from paying more (or receiving less) than you intended. You can also use a market order, which fills when ready at whatever price is available right now, but the price might be worse than you expected because the bid-ask spread can move fast.

After you set your price and quantity, review the order and tap Submit. Robinhood sends your order to the market. It may fill when ready, or it may sit until another trader accepts your price. You can cancel an unfilled order by tapping the order in your Activity tab and selecting Cancel.

Understanding expiration and what happens to your position

Every options contract has an expiration date — the last day you can exercise or close the position. On Robinhood, options expire on the third Friday of each month, plus some weekly expirations on other Fridays. The expiration date is shown on every contract you look at.

If you own a call or put and do nothing by expiration, Robinhood will automatically close the position if it is worthless, or exercise it if it has value. If you own a call and the stock is above the strike price at expiration, Robinhood will buy 100 shares at the strike price and hold them in your account. If you own a put and the stock is below the strike price, Robinhood will sell 100 shares short. This can happen even if you do not have the cash or buying power to cover it, which can trigger a margin call.

To avoid this, close your position before expiration by selling what you bought or buying back what you sold. This is how most options trades end — not by expiration, but by closing the position early. You can close a position any time the market is open by tapping it in your Activity tab and selecting Close.

How to close a position before expiration

Open the Robinhood app and tap the Activity tab at the bottom. Find the options position you want to close. Tap it, then tap Close Position. Robinhood shows you the current bid and ask prices for that contract. If you bought the contract, you will sell it at the bid price. If you sold the contract, you will buy it back at the ask price.

You can set a limit price if you want to wait for a better price, or use a market order to close when ready. Most traders close positions using a limit order set between the current bid and ask, which gives them a chance to get a better price without waiting too long.

Once your close order fills, the position is gone from your Activity tab. Any profit or loss is locked in. You can open a new position in the same stock or a different one whenever you want.

Common mistakes to avoid when trading options on Robinhood

The biggest mistake is forgetting that one contract equals 100 shares. A premium of $1 looks cheap, but it costs $100 per contract. If you buy 10 contracts thinking you are risking $10, you are actually risking $1,000.

The second mistake is holding a position through expiration without understanding what will happen. If you own a call that is in the money (the stock price is above the strike), Robinhood will exercise it automatically, buying 100 shares per contract. If you do not have the cash or margin available, this can trigger a forced sale of other positions or a margin call.

The third mistake is using market orders on options with wide bid-ask spreads. If the spread is $0.50 wide and you use a market order, you might pay $0.50 more (or receive $0.50 less) than you expected. On a 10-contract order, that is $500. Use a limit order instead, set between the bid and ask.

The fourth mistake is trading options on stocks with low volume or wide spreads. Robinhood shows you the bid-ask spread before you submit an order, so check it. If the spread is more than 5% of the bid price, the contract is illiquid and may be hard to close when you want to.

Frequently Asked Questions

Do I need a minimum account balance to trade options on Robinhood?

Robinhood does not require a minimum balance to request options approval or to place your first trade. However, you must have enough buying power in your account to cover the cost of the contract. If you buy a call for $2.50 per share, you need $250 in buying power per contract.

What happens if I do not close my position before expiration?

Robinhood will automatically exercise or close your position at expiration. If you own a call and the stock is above the strike, Robinhood buys 100 shares at the strike price. If you own a put and the stock is below the strike, Robinhood sells 100 shares short. If the contract is worthless, it straightforward closes. This can trigger a margin call if you do not have enough cash or buying power.

Can I sell options I do not own?

Yes, but only if your options level allows it and you meet Robinhood's requirements. Selling a call or put you do not own is called "opening a short position." You are betting the price will move against the buyer. If it does not, you keep the premium. If it does, you may have to buy the contract back at a loss or have it exercised against you.

Why is the bid price lower than the ask price?

The bid is what buyers will pay right now, and the ask is what sellers are asking. The difference is the spread, and it exists because market makers need to make money. A tighter spread (smaller difference) means the contract is more liquid and easier to trade. A wider spread means fewer traders are interested and you will pay more to buy or receive less to sell.

Can I trade options after hours on Robinhood?

No. Options trading on Robinhood is only available during regular market hours, 9:30 a.m. to 4 p.m. Eastern Time, Monday through Friday. You can place orders after hours, but they will not fill until the market opens the next day.