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You are among the first users to try options trading at Wealthsimple. Congratulations! (And thank you!) While the product is currently under construction, we've decided to share it with a select group of Wealthsimple clients. Your early input will be key to making this program great, so whatever feedback you have, we'd love to hear it. (To share your thoughts or concerns, please use this survey.)
The first half of this article walks you through exactly how to trade options at Wealthsimple. If you want to learn more about how options themselves work — and whether they are right for your portfolio — you'll find that in the second half. (You can also click here.)
Getting Started
Before you can trade options with Wealthsimple, you have to apply to enable your accounts. This isn’t because we’re control freaks. It’s because we want to make sure that anyone trading options with Wealthsimple fully understands how options work and what risks they carry. The application process is simple: we will ask a few questions about your trading experience. If you're not a seasoned pro, you'll need to read through some (not-at-all-boring!) educational content.
Once you have successfully completed onboarding, you'll be able to buy or sell options in any of your self-directed trading accounts using the Wealthsimple mobile app. There is no minimum account balance required. Currently, options trading is only available through the Wealthsimple mobile app, in your DIY accounts. Lastly — and this one's pretty important — for the duration of this test, please do not upgrade or downgrade your subscription status while holding open options positions.
Note: while all links to content may not yet be active in the app (since Options aren’t yet available to everyone!), we made sure to gather all of the relevant information for you in this article.
Wealthsimple offers long calls and long puts options trading strategies on our most popular U.S. listed stocks with a limited set of contracts. Options are not yet available on any dual-listed securities or indices.
Types of options available through Wealthsimple DIY
Wealthsimple offers two options trading strategies: long call options and long put options.
Both long call options and long put options have several components in common:
They can also both use the following terms to describe their state:
Note: An option contract usually represents 100 shares. This means that you must be willing to buy or sell 100 shares to exercise an option contract. To learn more about the specifics of these options, click here.
How to buy an option
When you place an order to buy an option, we submit your order to the market as a limit order. Your limit price reflects the maximum amount you’re willing to pay for a premium. We currently support only limit orders for options.
Note: Currently, you cannot buy an option through Wealthsimple on the day it expires.
Wealthsimple automatically charges a per-contract fee on all successful buy orders. This fee is determined by your subscription status. You can learn more about our contract fee and all other options fees in the “Pricing” section below.
To buy an option, follow these steps:
Log in to your Wealthsimple mobile app
Tap the Discover tab at the bottom of your screen
Under Options, tap Get started with options
Select the stock that you want to trade options on
Tap Buy
Select Buy options
Choose the contract you’d like to purchase from the option chain. You can choose between long calls and long puts and select a desired expiry date
Once you’re happy with the selected contract, tap Buy option
Choose your desired account and tap Continue
Enter the number of contracts you want to purchase and tap Continue
Choose your limit price and tap Continue
Review your order details and Place order
Note: While we support transfers between your accounts, we do not currently support transfers of options from other financial institutions where you may currently hold options positions.
How to sell an option
When you place an order to sell an option, we submit your order to the market as a limit order. Your limit price reflects the minimum amount you’re willing to put as your premium. We currently only support limit orders for options.
Wealthsimple automatically charges a per contract fee on all successful sell orders. This fee is determined by your subscription status. You can learn more about our contract fee and all options fees in the “Pricing” section below.
To sell an option that you own, follow these steps:
Log in to your Wealthsimple mobile app
Tap the Invest tab at the bottom of your screen
Select the account where you hold the option
Under Portfolio, select the stock
Scroll down to your contracts and tap View options
Under the option you want to sell, tap View option details
Tap Sell at the bottom of your screen
Choose your account and tap Continue
Enter the number of contracts you want to sell and tap Continue
Enter the lowest price you’d sell this contract for and tap Continue
Review your order details and Place order
How to view your option positions
You can view pending option orders and filled option orders by following these steps:
Log in to the Wealthsimple mobile app
Tap the Settings tab at the bottom of your screen
Select Activity
Here you can see any pending or recently filled orders
How to cancel a pending order
Pending options orders are unfilled orders as they have not met your limit price. To cancel a pending option order, follow these steps:
Log in to your Wealthsimple mobile app
Tap the Settings tab at the bottom of your screen
Select Activity
Tap the pending option you want to cancel
Select Cancel order
Select Yes, cancel
Note: Once an option order has been filled, you cannot cancel it.
Closing your position
Exercising your options
If your option is in the money $0.01 or more on its expiry date, Wealthsimple will automatically try to exercise it. (Note that standard Wealthsimple instant funds limits also apply to options trading). If you do have the funds or shares to cover the exercise transaction, they will be reserved in your account after market close on the expiry date, and thus will not be accessible for trade.
For long call options this includes the total amount required to follow through with the contract, along with an exercise fee.
For long put options, the exercise fee will be deducted from the proceeds of the sale of your shares.
If you do not have enough funds or shares to exercise all of your in-the-money positions that expire on the same day, we will exercise your positions in the order in which they were opened.
Note: Corporate actions — events and changes that impact shareholders — may affect the positions you are holding. We do not support exercising adjusted contracts after a 1-to-many corporate action event, even if the adjusted contract is in the money. Sell to close your position to avoid your contract expiring worthless.
If the underlying symbol has gone through a corporate action, the date the adjusted contract is created becomes the new purchase date (which, if applicable, impacts the order in which it will be auto-exercised).
Tip: If you do not have enough settled funds in your account to exercise an option, you can still attempt to sell it to close out your position and earn a profit.
What other options do you have with your options?
If you do not want your in-the-money option to automatically exercise at expiry, there are a few actions you can take.
Do not exercise instruction
A do not exercise instruction prevents your option from automatically exercising if it’s in-the-money at expiry. To submit a do not exercise instruction, you must reach out to our support team over email or chat before 3:00 p.m. EST on your expiry date.
Exercising an option early
Exercising an option early refers to exercising an option before its expiry date. To exercise an option early, you will need to reach out to our support team over email or chat before 3:00 p.m. EST. Requests to exercise options early that come in after that will be pushed to exercise the following business day.
Exercising by exception
To exercise your option by exception (exercise an option that is out of the money), reach out to our customer support team over email or chat. You must reach out to our team before 3:00 p.m. EST on your expiry date to stop your option from expiring worthless.
Pricing
Please see our fee schedule here.
Note that all fees are charged in USD and therefore require sufficient USD in your account to cover them.
Payment for Order Flow
In order to offer low contract fees and make options accessible to all clients, Wealthsimple accepts payment for order flow (PFOF) on all options orders.
Accepting PFOF does not create any additional cost to our clients. It also does not impact our requirement to make sure that our clients receive the National Best Bid and Offer (NBBO).
Learn more about PFOF and Wealthsimple.
Everything (else) you need to know about options
What is an option?
Options are contracts. They give you the right (but not the obligation) to buy or sell a specific stock at a specific price by a specific date.
But there's so much that can happen before that date. Options trade on markets just like securities do. Which means, along with the right to buy or sell a particular stock, options holders also have the right to sell the option itself at any point until it expires. Here are a few scenarios:
Say Apple is trading at $150, and you think it’s going to go up. You could buy an option that gives you the right to buy AAPL stock for $170 a share within two months (by the expiration date), no matter its price at that time.
If you waited two months and Apple was at $180, you could “exercise” your option, which just means you’d buy the stock at your locked-in rate of $170 and could immediately sell it (at the going rate of $180) for a profit of $10/share. An option contract usually represents 100 shares of the underlying stock, but the price (called the premium) is quoted per share. So in this example, with a $5 premium, those Apple options would cost $500 per contract. After subtracting your $500 premium from the $1,000 you earned, you’d end up with $500 in profit, minus some fees. For comparison’s sake, had you invested that $500 in Apple shares, you’d be up 20%, or $100.
You could also sell the option before it expires. A lot of people do. Say AAPL got to $165 a month after you bought the option. You could sell the option for more than you bought it for, since it’s closer to the $170 — and closer to making a profit when exercised at the expiry date.
In a less rosy scenario, say AAPL traded well below $170 for those two months. You could sell the option at any point for a loss — someone might be willing to take on the risk. If you held on to it till expiration, though, there’d be no point in exercising your option and you’d lose your $500.
Why would you buy an option?
You want to hedge your risk. Say you own a lot of Apple stock and you're worried the price could fall. The right options could limit losses if that prediction comes true.
You want to get more exposure without spending a lot of money. Buying Options can be a lot cheaper than buying corresponding stock outright, and the leverage provides a much higher potential upside.
You have studied the market and want to play your hunches. Instead of simply choosing between whether a stock will go up or down, options can be used to profit off of predictions of how much a stock will move and by when.
What are the different types of options?
Call options let you buy a stock at a certain price (called the strike price) on or before the expiry date. They’re useful if you think a stock is going up, because they let you buy shares for what could be less than the market price. (There’s a handy glossary of terms at the bottom of this page.)
Put options let you sell a stock at a certain price on or before the expiry date. They’re useful if you think a stock is going down, because they let you sell shares for what could be more than the market price.
Of the more common options, you’ll also see single stock options, which are (surprise!) that relate to a single stock (e.g Apple, Google, Amazon), and ETF options — options that relate to … ETFs (groups of stocks).
What happens with an option after you buy it?
Let’s go back to the Apple example. You could sell that option up until the day it expires. What you could sell it for depends primarily on the price of the underlying stock.
If AAPL tanked way below the strike price a few weeks after you bought your option, you could sell it, but you’ll likely get less than the $500 you paid, since the option would be less likely to pay off. If AAPL is way above the strike price and there’s only a week left till the option expires, however, the option has a high chance of making money, and you likely could sell it for a lot more than $500.
You could also wait till the expiration date. (Another also? You could exercise the option early. But we’ll get to that in a second.) If AAPL is above $170 that day, you could exercise your option and pocket the difference. If you get to the expiration date and the stock is below $170, however, you lose your $500.
A lot of traders don’t get that far. Not because they’re lazy but because they may not have the cash. Exercising that Apple option would cost $170 x 100, or $17,000. So instead they “sell to close,” which just means they sell the contract to someone else. In the case where APPL tanked, you’d likely sell for a loss (but potentially recoup part of what you originally paid). In the case where APPL rose, you’d likely sell for a profit. In either case, it’s a way of seeing similar returns without needing bags of cash lying around.
When can you exercise an option?
Assuming you have enough money to buy the underlying stocks (for a call) or enough stock to sell (for a put), options can be exercised at any time. But often it's in an investor’s best interest to wait till the expiration date.
If your option isn’t "in the money" (when the stock’s current price means you would profit if you bought or sold at the strike price), exercising it means locking in your losses. Even if it is in the money, if you exercise an option early you are losing out on the time value. What’s that mean? The closer an in-the-money option gets to expiring, the more it’s worth.
If your option expires “out of the money" — you’re out of luck. You lose whatever you paid for it.
What drives the price of an option contract?
Like any other market, it depends what people are willing to pay. Figuring that out is complicated and abstract, but it’s essentially driven by three things:
1. how much the underlying stock price needs to move for the option to be in the money. In the Apple example above, you have a call option that would let you buy 100 shares of AAPL at $170. If AAPL is at $120, the option is worth a loooot less than if AAPL is at $168. And if the stock is already at $175, the option is worth even more.
2. how much the stock price tends to change (its volatility) AAPL doesn’t have much volatility; it’s been a steady mountain climber, with a few dips here and there. If it’s at $120 and you need it to get to $170, there’s not much chance of that happening before the option expires. A stock like DraftKings, however, has a price chart that might as well track a bumblebee on speed. Even if the strike price is still far away, a stock like that has a much better chance of getting in the money. Which means the option will cost more.
3. how much time until the option expires The more time you have, the more time there is for the underlying stock price to change — and the more valuable an options contract is.
The specific metrics for pricing options are called "the Greeks." They have nothing to do with that (actually-not-completely-horrible) Russell Brand movie. You’ll see them listed with every option contract, and how they are calculated is pretty 🤓. To learn more about them, check out the glossary below.
What are the risks of options?
🛑 This is important, because the risks are big: If stock underlying your option doesn't hit its strike price and you can't convince someone to take it off your hands before it expires, you’ve lost whatever you paid for it.
That’s 100% loss, which is an incredibly rare occurrence if you were trading a typical stock. This is why trading options is riskier than trading stocks.
Some terms you might come across
If you already know that an Iron Condor is not a member of the Marvel Cinematic Universe and is in fact a complicated way to trade options, you can skip this part.
Strike price -the agreed upon future purchase or sell price of the option’s underlying asset.
Put options - these give you the right to sell an asset at a particular price. You buy a put option when you think a stock price is going to fall. It’s similar to short selling.
Call options - the opposite of a put. These options give you the right to buy an asset at a particular price. It’s used by investors who think a stock price is going to go up.
Expiry date - the date by which you can exercise or sell to close option contracts. The time before expiry can range from a single week to as many as three years.
In the money -In the money — or “ITM” if you’re texting with someone in a Patagonia vest — means that an investor would profit from exercising an option.
Out of the money - this one’s easy: the opposite of in the money.
Premium - how much an option will cost you to purchase. Though premiums are quoted per share, they are generally bundled and sold in increments of 100 shares per contract. So if the premium is $5.50, those options will cost you $550 per contract.
Breakeven: The amount the underlying stock needs to move for you to break even on an options trade.
Time value - how much time there is between now and the expiry date.
Volatility - a measure of an underlying asset’s price swings.
Bid, Ask and Spread - a bid is how much traders are currently willing to spend on an asset (in this case an option), an ask is how much sellers are willing to spend on it, and the spread is the difference between the two. The bid/ask spread can sometimes be wider for options than for stocks, which may make it harder for you to sell an option than a stock.
Mark - That college friend you really should call. Those were fun times. Also: the midpoint between the bid and the ask. It’s often quoted as the best measure of value.
High - the highest price at which a given security has traded over the current or last trading day.
Low - the lowest price at which a given security has traded over the current or last trading day.
Last trade - the price at which an asset was bought or sold in its most recent transaction.
Volume - the total number of options contracts being traded over the current or last trading day.
Open interest -the total number of option contracts that are currently active.
Some terms you might come across: the Greeks edition
Implied volatility - an estimate of how much a stock will fluctuate over the life of an option. The number is reflected as a percentage. The higher it is, the more movement is expected — meaning there’s a higher chance of profit (or loss) — and the more the option will be worth. Implied volatility typically increases with market expectations for risk and general demand for options.
Delta - an estimate of how much an option's value is likely to change when the price of the underlying stock changes. Delta values range from -1.0 to 1.0. A delta of 0.25, for example, tells you that for every $1 increase in the value of the underlying stock, the value of the option should increase by about $0.25. A negative delta means that an increase in stock price results in a decrease in option value.
Gamma - how much an option’s delta changes in response to changes in the price of the underlying asset. When someone buys an option, it has positive gamma between 0 and 1. The closer an option is to expiry or the strike price, the higher that number goes; the farther it is from either, the lower the number goes. For investors hedging their options positions by also holding the underlying stock, Gamma is often used to determine how much of the stock to buy/sell after the stock price changes in order to remain hedged against future moves.
Theta - an estimate of an option’s decline in value over time. Also known as “time decay,” theta is expressed as a negative number, and it grows as an option gets closer to expiring.
Vega - an estimate of how much the price of an options contract will change in response to a change in the implied volatility of the underlying asset. The higher the vega, the more sensitive an option is to big events like earnings.
Rho - an estimate of how sensitive the value of an option is to changes in the interest rate of (because these are USD options) a U.S. Treasury bill. Call options tend to have a positive rho and put options have a negative one. Rho tends to be less of a factor than the other Greeks, but can still be useful if you expect interest range to change.
Last Updated January 30, 2023
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