Approval Levels, and Which One You Actually Need
What each tier permits, and how to get upgraded without overstating your experience.
Course contents73 lessons · 28 questions
Before you can sell anything you need the broker's permission, and the tier system they use is one of the more confusing pieces of retail infrastructure — every firm numbers it differently and none of them explain the boundaries clearly.
The good news: the strategies at the centre of this course sit near the bottom of every system, and getting approved for them is straightforward.
The rough hierarchy
| Roughly | Permits | Needed for |
|---|---|---|
| Level 1 | Covered calls, protective puts | Writing calls on shares you own |
| Level 2 | Buying calls and puts, cash-secured puts | The wheel |
| Level 3 | Spreads and other defined-risk multi-leg | Credit spreads, condors |
| Level 4 | Naked puts on margin | Uncovered short puts |
| Level 5 | Naked calls | Rarely granted to retail |
Typical structure. Numbering and grouping vary considerably by broker.
For this curriculum: Level 2 runs the whole wheel — cash-secured puts and covered calls. Level 3 adds the spreads track. Nothing here needs Level 4 or 5, and the restriction on Level 5 is doing you a favour.
What the application asks
Income, net worth, liquid net worth, investment objective, and — the one that matters — your options experience: years trading and typical trade frequency.
There is a strong temptation to inflate these. Two reasons not to.
The practical one: the answers feed into the position limits and margin treatment applied to your account. Overstating your net worth can result in being granted more leverage than you should have, which is a problem you have created rather than solved.
The other: the questions exist because the tiers gate genuinely different risk. If you have never sold an option, the honest answer routes you to Level 2 — which is precisely where this course expects you to start.
Getting upgraded
Most brokers let you reapply at any time, and approvals are frequently instant if the account and stated experience support it. If you are declined, the usual routes are to trade at your current level for a few months and reapply, to add margin approval where the tier requires it, or to call and ask what specifically was insufficient.
Two details worth knowing:
IRAs need their own approval. Permissions do not carry across from your taxable account, and IRA tiers are usually capped lower — see options in an IRA.
Spreads sometimes require margin approval even though they are defined-risk, because of how the broker computes the requirement. In a cash account this can block the spreads track entirely.
A higher level is not an achievement
It is worth saying plainly: approval level is a permission, not a qualification. Level 4 does not mean you should sell naked puts; it means the broker has decided you can absorb the consequences if you do.
Plenty of consistently profitable premium sellers run entirely at Level 2, in a cash account, for years. The constraint enforces the sizing discipline that position sizing asks you to impose on yourself, and doing that voluntarily at a higher tier is harder than it sounds.
What can go wrong
Overstating experience or net worth. Grants leverage that is your problem, not the broker's.
Assuming permissions carry to an IRA. Apply separately.
Planning a spread strategy without checking. Level 3 may require margin approval you do not have.
Treating a higher tier as progress. It is permission to take more risk, not evidence you should.
Key takeaways
- Level 2 covers the entire wheel: cash-secured puts and covered calls.
- Level 3 adds defined-risk spreads; nothing in this course needs Level 4 or 5.
- The same put sits at a lower tier when cash-secured than when sold on margin — the tiers encode a real difference.
- IRAs require their own approval and are usually capped lower than taxable accounts.
- A higher level is permission, not qualification. Many consistently profitable sellers never leave Level 2.
Check your understanding
1. What approval level do you need to run a complete wheel strategy?
2. Why is a cash-secured put usually a lower tier than the same put sold on margin?
3. What does a higher approval level actually mean?