How to Trade Options on Robinhood (2026)

An options contract gives the buyer the right — but not the obligation — to buy or sell a specific stock (or other underlying asset) at a set price (the strike price) before a specified expiration date. A call option grants the right to buy; a put option grants the right to sell. In exchange for this right, the buyer pays a premium to the seller of the option.

Options can expire worthless if the underlying stock does not move in the direction the trader anticipated. When an option expires worthless, the buyer loses 100% of the premium paid. Options buyers have defined maximum losses (the premium), but losses for options sellers can be theoretically unlimited in certain strategies. FINRA and the SEC both publish investor education resources on options risks for retail investors.

Options pricing depends on several variables: the current stock price, the strike price, the time remaining until expiration (time decay), implied volatility, and interest rates. This complexity makes options substantially harder to evaluate than a simple stock purchase. Before trading options, ensure you understand the basics — including how to invest in the S&P 500 as a lower-risk alternative — so you can make truly informed comparisons.

Robinhood offers options trading access at two levels: Level 2 and Level 3. Most retail traders seeking basic options access — buying calls and puts — need Level 2 approval. Level 3 approval allows more complex multi-leg strategies that involve selling options, which carries higher risk.

To apply for options approval, you complete a questionnaire in the Robinhood app covering your investment experience, trading knowledge, financial situation, and risk tolerance. Robinhood evaluates these responses and may approve, conditionally approve, or decline the application. You must be at least 18 years old and have a funded Robinhood account to apply.

If denied, Robinhood typically explains why and may allow you to reapply after a period of time. FINRA rules require broker-dealers to assess customer suitability before approving options trading accounts. This is a consumer protection measure — the approval process is designed to ensure you have a baseline understanding of the risks involved. Understanding how to withdraw money from Robinhood is also important so you know how to access funds after closing positions.

Once approved, you can place an options trade by searching for the stock ticker in the app, tapping the stock's detail page, selecting Trade, and then choosing Trade Options. You will see a list of available expiration dates — select one, then choose your desired strike price and whether you want a call or put.

Robinhood displays the current bid and ask price for each contract, along with the break-even price — the price the underlying stock must reach at expiration for the trade to be profitable. Each standard options contract represents 100 shares of the underlying stock, so the premium you pay is multiplied by 100. A contract quoted at $2.00 per share costs $200 total.

You can place a limit order (specifying the maximum price you are willing to pay) or accept the current market price. Review all details carefully — including expiration date, strike price, number of contracts, and total cost — before confirming the order. Errors in options orders can be costly and may not be reversible. You should also understand how to sell on Robinhood to properly close your options positions when needed.

FINRA warns that options are not appropriate for all investors and that most retail options traders lose money. The primary risk is that options can expire completely worthless, resulting in a 100% loss of the premium paid. This risk applies even when the underlying stock moves in the right direction, if the move is too small or arrives after the option has expired.

Time decay (known as theta) works against options buyers — the value of an option decreases as expiration approaches, all else equal. This means that even a stock that moves sideways can cause an options position to lose value simply due to the passage of time. Traders who are not actively monitoring their positions can experience significant losses without any adverse stock movement.

Selling uncovered (naked) options — a strategy available only at higher approval levels — can result in losses exceeding the initial investment. FINRA's Investor Alert on options trading describes scenarios in which options sellers face potentially unlimited losses. If you are new to options, FINRA and the SEC recommend starting with educational resources before committing any capital. Also consider how shorting a stock on Robinhood works, as it carries similarly elevated risk and is often confused with options strategies. Many retail traders who are drawn to options on individual names like AMZN find that lower-volatility strategies — such as dividend-focused investing — produce more consistent long-term returns with far less complexity.

Options trading gains and losses are generally subject to capital gains tax. Short-term gains — on positions held one year or less — are taxed as ordinary income. Long-term gains on positions held more than one year are taxed at preferential capital gains rates, as of 2026.

Special tax rules may apply to certain options strategies, including Section 1256 contracts (for broad-based index options), which receive a blended 60/40 long-term/short-term treatment regardless of holding period. Options activity is reported on Schedule D and Form 8949. Consult a CPA familiar with options taxation before filing — options tax reporting can be complex and errors are common. Understanding how tax write-offs work for investment losses can help offset taxable gains from profitable trades. You may also want to request an IRS transcript to reconcile your reported investment income with IRS records.