There are several option trading levels, each of which allows additional access to various forms of options trading based on the experience and investment objectives. Option levels are an industry standard way to determine how much risk a client should be allowed to take, with level 1 being lower risk strategies and higher levels having riskier options.
SoFi currently only supports level 2 options execution, which means you can buy calls and puts, and sell to close positions. All approved accounts are assigned to level 2 options strategies by default. Level 1 capabilities (selling covered calls and cash secured puts) will automatically be added as soon as they are available.
Level 1: covered calls and buy writes
Trading level 1 is the lowest level and it typically only permits two types of trades: a covered call sold against a long stock position in your account and a buy-write, which is buying a stock and selling a covered call at the same time. These strategies are not available yet, but are on our radar.
Level 2: long options
Trading level 2 adds the ability to buy call options and put options. This is typically the level that most beginners are allowed to start with. The key difference between level 1 and level 2 is that traders are able to make directional bets with level 2. And since they can only buy and not write options, a trader’s risk is limited to only the money used when buying the options.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Options Disclosure Document. Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.