How to Get Approved for Covered Calls on Interactive Brokers: Options Level Explained

The Short Answer: You Need Options Level 1 on IBKR

To sell covered calls on Interactive Brokers (IBKR), you need Options Trading Level 1. That is the entry-level options permission on the platform, and it specifically covers writing calls against stock you already own. You do not need Level 2, Level 3, or a margin account to get started — a standard cash or margin account with Level 1 approval is enough.

IBKR uses a tiered permission system that matches your experience and account type to the strategies you can trade. Covered calls sit at the lowest-risk tier because your shares act as collateral. The Options Industry Council (OIC) describes covered calls as one of the most conservative options strategies available to retail investors, which is exactly why regulators and brokers place them at Level 1.

What Does Each Options Level Actually Allow?

Interactive Brokers breaks options permissions into levels roughly as follows:

**Level 1** — Covered calls and cash-secured puts. You own the underlying stock (or hold the cash), so your risk is capped and well-defined.

**Level 2** — Long calls and long puts. You are buying options outright, which means you can lose 100% of the premium paid but nothing more.

**Level 3** — Spreads (verticals, calendars, diagonals). These involve simultaneous long and short legs and require a margin account.

**Level 4 and above** — Naked short options and more complex strategies. These carry theoretically unlimited risk and require significant net liquidation value and experience.

For covered-call sellers, Level 1 is the destination. You are not trying to climb the ladder — you just need that first rung unlocked.

Step-by-Step: How to Apply for Options Approval on IBKR

The application takes about 10 minutes inside Client Portal or the IBKR mobile app. Here is exactly what to do:

**Step 1 — Log in to Client Portal.** Go to Settings, then Account Settings, then find the Trading Permissions or Configuration section. Click the pencil icon next to Options.

**Step 2 — Select your account type.** If you have a cash account, you will see options for covered calls and cash-secured puts right away. If you have a margin account (Reg T margin, as defined by FINRA Rule 4210), you will have the same access plus the ability to apply for higher levels later.

**Step 3 — Complete the options questionnaire.** IBKR is required by FINRA and the SEC to collect suitability information before granting options trading. You will answer questions about your investing experience (years trading stocks, years trading options), your annual income, net worth, liquid net worth, and your investment objectives. Answer honestly — IBKR cross-checks this data.

**Step 4 — Describe your experience level.** For Level 1 approval, you typically need to show at least 1-2 years of stock trading experience and a basic understanding of how options work. You do not need prior options trading history, but you should be able to explain what a call option is and what expiration means.

**Step 5 — Submit and wait.** Most Level 1 approvals are granted within one business day, and many are instant. If IBKR requests more information, they will email you. If you are denied, you can reapply after 90 days or call IBKR client services to discuss your application.

**Canadian accounts:** If you hold an IBKR Canada account, the same process applies, but IBKR Canada is regulated by CIRO (Canadian Investment Regulatory Organization, formerly IIROC). The CRA treats covered-call premiums as income or capital gains depending on your trading frequency and intent — consult a Canadian tax professional for your specific situation.

A Worked Example: Selling a Covered Call on AAPL

Let's make this concrete. Suppose you own 100 shares of Apple (AAPL), currently trading at $213 per share. You want to generate income by selling one covered call contract (each contract covers 100 shares).

You look at the options chain and find the AAPL $220 call expiring in 30 days. The bid is $2.85 and the ask is $2.95. You sell one contract at $2.90 (the midpoint), collecting $290 in premium immediately (100 shares × $2.90).

**Scenario A — AAPL stays below $220 at expiration.** The call expires worthless. You keep the $290 and still own your 100 shares. Your effective cost basis on the shares dropped by $2.90 per share.

**Scenario B — AAPL rises above $220 at expiration.** Your shares are called away at $220. You receive $22,000 for the shares plus you already collected the $290 premium, for a total of $22,290. You no longer own the shares. If you bought AAPL at $200, your profit is $2,290 on a $20,000 investment — not bad, but you missed any gains above $220.

**The delta context:** The $220 strike in this example has a delta of roughly 0.30, meaning the market prices in about a 30% chance the option finishes in the money. Most covered-call sellers target the 0.25–0.35 delta range to balance premium income against the probability of assignment. The OIC publishes free educational material on delta if you want to go deeper.

This is the core trade. Level 1 approval is all you need to execute it on IBKR.

What Are the Real Risks You Need to Understand Before Applying?

Covered calls are conservative relative to other options strategies, but they are not risk-free. Here are the three risks that matter most:

**1. Capped upside.** Once you sell the call, your profit on the stock is capped at the strike price. If AAPL in the example above shoots to $240, you still only receive $220 per share. You gave up $20 per share of upside in exchange for $2.90 in premium. That trade-off is the core of the strategy.

**2. You still own the downside.** The premium you collect partially offsets a stock decline, but it does not protect you much. If AAPL drops from $213 to $185, your $2.90 premium only cushions $2.90 of that $28 loss. Covered calls are not a hedge — they are an income tool.

**3. Early assignment risk.** American-style options (which most US equity options are) can be exercised by the buyer at any time before expiration. This is rare before expiration but it does happen, especially around ex-dividend dates. If your shares are called away early, you may miss a dividend and face an unexpected taxable event. The IRS treats the sale of called-away shares as a capital gain or loss in the year the shares are sold — the holding period matters for short-term vs. long-term rates. FINRA and the SEC both require brokers to disclose early assignment risk in options disclosure documents, which IBKR will ask you to acknowledge during the application process.

Common Reasons IBKR Denies Level 1 Applications (and How to Fix Them)

IBKR rejects a meaningful number of first-time applications. Here are the most common reasons and what to do:

**Insufficient experience reported.** If you enter zero years of stock trading experience, IBKR's automated system will likely decline you. If you have been investing in stocks for any length of time — even through a 401(k) or TFSA — report that experience accurately.

**Account balance too low.** While there is no hard published minimum for Level 1 specifically, IBKR's suitability review considers your liquid net worth relative to the risk of the strategies requested. Having at least enough to own 100 shares of the stock you plan to write calls on is a practical floor.

**Inconsistent answers.** If you report a conservative investment objective but then request Level 3 or 4 permissions at the same time, the system flags the inconsistency. Apply only for Level 1 if covered calls are your goal.

**What to do if denied:** Call IBKR's trade desk or use the secure message center in Client Portal. Explain your strategy clearly — you own stock and want to write calls against it. A human review often overrides an automated denial when the strategy is straightforward and your account holds the underlying shares.

Tax Treatment of Covered-Call Premiums: A Quick Note

The IRS treats covered-call premiums differently depending on whether the option expires, is closed, or results in assignment.

If the option **expires worthless**, the premium is reported as a short-term capital gain in the tax year it expires, regardless of how long you held the underlying stock. This is true even if you have owned the shares for years.

If the option is **closed by buying it back**, the difference between what you received and what you paid to close is a short-term capital gain or loss.

If the option leads to **assignment** (your shares are sold), the premium is added to the proceeds of the stock sale. The holding period of the stock then determines whether the overall gain is short-term or long-term.

There is an important wrinkle: the IRS has rules around "qualified covered calls" under IRC Section 1092. If your call is too deep in the money, it can suspend the holding period on your shares, potentially converting a long-term gain into a short-term gain. IRS Publication 550 covers this in detail. Canadian investors should note that the CRA has its own treatment of option premiums — again, a tax professional familiar with Canadian securities law is worth consulting.

IBKR provides a consolidated 1099 (for US accounts) that includes options activity, which makes tax filing more straightforward than at some other brokers.

What options level do I need to sell covered calls on Interactive Brokers?

You need Options Trading Level 1 on IBKR. This is the entry-level permission and it covers writing calls against stock you already own. You do not need a margin account or a higher permission level to get started.

How long does IBKR options approval take?

Most Level 1 applications are approved instantly or within one business day. If IBKR needs more information, they will contact you by email. Complex applications or those flagged for manual review can take two to three business days.

Can I sell covered calls in an IBKR cash account or do I need margin?

You can sell covered calls in a cash account as long as you own the underlying shares. A margin account is not required for Level 1 covered-call writing. Margin accounts are needed for higher-level strategies like spreads or naked options.

What happens if my covered call gets assigned on Interactive Brokers?

If your call is assigned, IBKR automatically sells your 100 shares at the strike price and credits your account. The premium you collected is added to the sale proceeds for tax purposes. IBKR sends a trade confirmation and the transaction appears in your activity statement the next morning.

Does selling covered calls affect my stock's holding period for tax purposes?

It can. The IRS has rules under IRC Section 1092 for qualified covered calls, and writing a deep in-the-money call can suspend the holding period on your shares. This could convert a long-term capital gain into a short-term one, so check IRS Publication 550 or consult a tax advisor before writing deep ITM calls on shares you have held for less than 12 months.

Can Canadian IBKR account holders sell covered calls the same way?

Yes. IBKR Canada accounts follow the same tiered permissions process, and covered calls require Level 1 approval. IBKR Canada is regulated by CIRO. The CRA treats option premiums differently than the IRS does, so Canadian investors should speak with a tax professional familiar with Canadian securities rules before trading.