Ready to dive into the exciting world of options trading on Webull? Selling options can be a powerful strategy to generate income, hedge existing positions, or even acquire shares at a discount. But before we get started, let me ask you: are you ready to unlock new possibilities for your portfolio? If your answer is a resounding "Yes!", then let's begin this comprehensive journey.
Selling options, also known as "writing" options, involves taking on an obligation in exchange for a premium. This means you receive money upfront, but you also agree to either buy or sell the underlying asset if certain conditions are met by the option's expiration date. It's a different beast than simply buying options, so understanding the mechanics is crucial.
Step 1: Getting Approved for Options Trading on Webull
Before you can even think about selling options, you need to ensure your Webull account is approved for options trading. This isn't just a formality; it's a regulatory requirement to ensure you understand the risks involved.
Sub-heading: Eligibility and Application Process
Be of Age: You generally need to be at least 21 years old to trade options on Webull.
Account Type: Options trading is typically available in individual and joint brokerage accounts.
The Application:
Open the Webull App: Navigate to the "Menu" (bottom right).
Go to Settings: Tap on "Settings" below your profile picture.
Manage Brokerage Account: Select "Manage Brokerage Account."
Options Trading: Look for and tap on "Options Trading."
Enter Trading Password: You'll likely need to input your trading password for security.
Open "Options Trading": This will initiate the application.
Tick Necessary Fields: You'll be asked a series of questions about your financial situation, trading experience, and investment objectives. Be honest and accurate with your answers, as this helps Webull determine your options approval level.
Submit: Once you've filled everything out, tap "Submit."
Approval Levels: Webull has different options approval levels, each allowing for progressively more complex strategies. To sell options, especially "naked" options (where you don't own the underlying shares), you'll need a higher approval level. Be aware that naked options carry significant risk, potentially unlimited losses, and generally require a minimum net account value (NAV) of $10,000. For strategies like covered calls or cash-secured puts, the requirements are less stringent.
Step 2: Funding Your Account and Understanding Buying Power
Even with options approval, you need sufficient funds in your account to execute trades.
Sub-heading: Cash is King (and Margin is its Sidekick)
Initial Funding: If your account is new, fund it through ACH transfer, wire transfer, or linking a debit card. ACH transfers typically take 3-4 business days to clear for options trading, while debit card or wire transfers are usually faster (within 1 business day).
Buying Power for Options:
Cash Account: In a cash account, your options buying power is generally your available cash. You need the full premium amount in your account before placing a trade.
Margin Account: In a margin account, your options buying power is tied to your margin excess. While you can use margin to open some options positions, remember that options themselves are considered non-marginable securities and must be paid for in full. For strategies like credit spreads, the buying power requirement is based on the width of the spread.
Minimums: Certain strategies, especially those involving short options (selling), may have specific minimum account value requirements. For instance, to open any spread strategy in a margin account, you typically need at least a $2,000 NAV.
Step 3: Understanding the Types of Options You Can Sell
Selling options fundamentally means taking on an obligation. The two primary types of options are calls and puts, and selling each has a distinct implication.
Sub-heading: Calls and Puts - The Seller's Perspective
Selling Call Options (Short Call): When you sell a call option, you are obligated to sell the underlying stock at the strike price if the buyer chooses to exercise the option. You receive a premium upfront for taking on this obligation.
Covered Call: This is a popular strategy for income generation. You sell call options on stock you already own. If the stock price goes above the strike price, your shares will be "called away" (sold) at the strike price. Your potential profit is limited to the premium received plus any appreciation in the stock up to the strike price. Your risk is that the stock could fall, but your loss is capped by the price you paid for the stock, minus the premium received.
Naked Call (Uncovered Call): You sell call options on a stock you do not own. This is a highly risky strategy with unlimited potential losses. If the stock price rises significantly, you'd have to buy the shares at the higher market price to fulfill your obligation, leading to substantial losses. This strategy requires a higher approval level and significant capital.
Selling Put Options (Short Put): When you sell a put option, you are obligated to buy the underlying stock at the strike price if the buyer chooses to exercise the option. You receive a premium upfront.
Cash-Secured Put: This is a common strategy if you're bullish on a stock and wouldn't mind owning it at a lower price. You sell a put option and set aside enough cash in your account to buy the shares if they are "put" to you. If the stock price falls below the strike price, you'll be obligated to buy the shares. Your potential profit is limited to the premium received. Your risk is that the stock could fall significantly below the strike price, leading to losses, but your loss is capped by the strike price minus the premium received (if the stock goes to zero).
Naked Put (Uncovered Put): You sell a put option without having enough cash to buy the underlying shares. While the maximum loss is limited to the strike price (if the stock goes to zero), it still carries substantial risk if the stock plummets. Similar to naked calls, this requires a higher approval level and more capital.
Step 4: Researching and Selecting Your Options Contract
Now that you understand the different types of options you can sell, it's time to find the right opportunity.
Sub-heading: Navigating the Options Chain
Select the Underlying Stock: On Webull, search for the stock ticker you are interested in.
Go to the Options Tab: Once on the stock's page, you'll see a dedicated "Options" tab. Tap on this.
Choose Expiration Date: The options chain will display various expiration dates. The further out the expiration, generally the higher the premium, but also the more time for the underlying stock to move against you. Select an expiration date that aligns with your market outlook.
Decide on Call or Put: Based on your strategy (e.g., Covered Call or Cash-Secured Put), select "Calls" or "Puts" from the options chain view. You can also view "Both" to see all available contracts.
Select Strike Price: This is where careful consideration comes in.
For Selling Calls (Covered Call): You generally want to sell calls with a strike price above the current stock price (out-of-the-money or OTM) if you expect the stock to stay flat or rise slightly, and you don't mind selling your shares if it goes higher. If you sell at-the-money (ATM) or in-the-money (ITM), there's a higher chance of your shares being called away, but you'll receive a larger premium.
For Selling Puts (Cash-Secured Put): You typically want to sell puts with a strike price below the current stock price (OTM) if you want to acquire the stock at a lower price. If the stock falls to or below that strike, you'll be assigned. Selling ATM or ITM puts means a higher probability of assignment and a larger premium received, but also more downside risk if the stock tanks.
Analyze Premiums and Open Interest: Look at the bid and ask prices for the options contracts. The bid is what you can sell for, and the ask is what you can buy for. Higher open interest often indicates more liquidity.
Step 5: Placing Your "Sell to Open" Order on Webull
This is where you execute your trade!
Sub-heading: Order Entry and Confirmation
Select the Contract: Once you've identified the specific call or put option (expiration and strike price) you want to sell, tap on it in the options chain.
Choose "Sell to Open": You'll be presented with an order ticket. Make sure you select "Sell to Open." This is crucial. "Sell to Close" is for exiting an existing position.
Quantity: Enter the number of contracts you wish to sell. Remember, one options contract typically represents 100 shares of the underlying stock.
Order Type:
Limit Order (Recommended): This allows you to specify the exact premium you want to receive for selling the option. Your order will only be filled at this price or better. This is generally preferred for selling options to ensure you get your desired premium.
Market Order: This will execute your trade immediately at the best available market price. While fast, it can expose you to price slippage, especially for less liquid options. Use with caution.
Other order types like Stop-Limit are also available for options.
Time in Force:
Day: The order will only be active for the current trading day.
GTC (Good-Til-Cancelled): The order will remain active until it's filled or you manually cancel it (typically up to 60 days).
Review and Confirm: Carefully review all the details of your order: stock, option type (call/put), expiration, strike price, quantity, premium, order type, and time in force. Double-check everything before confirming!
Place Order: Hit the "Place Order" button.
Step 6: Managing Your Sold Options Position
Selling options isn't a "set it and forget it" strategy. Active management is key.
Sub-heading: Monitoring and Adjustment
Monitor the Underlying Stock: Keep a close eye on the price movements of the stock.
Monitor the Option's Premium: The premium you received will fluctuate with the stock price, time decay (theta), and implied volatility.
Time Decay (Theta): Time is generally your friend when selling options. As the expiration date approaches, the extrinsic value of the option decays, meaning its premium decreases. This works in your favor as a seller, making it cheaper to buy back the option or increasing your profit if it expires worthless.
Implied Volatility (IV): High IV generally means higher premiums for options. If you sell when IV is high and it subsequently drops, the option's value will decrease, which is beneficial for you as a seller. Conversely, if IV increases after you sell, the option's value will rise, working against you.
Closing Your Position: You can close your sold option position at any time before expiration by placing a "Buy to Close" order for the same contract.
Profit Taking: If the option's premium has dropped significantly (e.g., due to time decay or favorable stock movement), you can buy it back for less than you sold it for, locking in your profit. Many traders aim to close positions when they've captured a significant portion of the premium (e.g., 50-75%).
Risk Management: If the trade goes against you, buying to close can help limit your losses before they become excessive, especially for naked positions.
Assignment/Exercise:
For Sold Calls: If the stock price is above the strike price at expiration, your call option will likely be exercised, and you'll be obligated to sell your shares (for covered calls) or buy and then sell shares (for naked calls).
For Sold Puts: If the stock price is below the strike price at expiration, your put option will likely be exercised, and you'll be obligated to buy shares.
Webull may auto-liquidate positions if your account equity is insufficient to support an exercise or assignment. It's crucial to manage your positions actively to avoid unexpected assignments or forced liquidations.
Step 7: Understanding Expiration and Settlement
The end game for any options contract is its expiration.
Sub-heading: What Happens at the Finish Line
In-the-Money (ITM) Options: If your sold option is ITM at expiration (call strike < stock price; put strike > stock price), it will typically be automatically exercised by the Options Clearing Corporation (OCC).
Call Assignment: If your covered call is assigned, your shares are sold at the strike price. If it was a naked call, you'd be obligated to buy shares at the market price and then sell them at the strike price, incurring a loss.
Put Assignment: If your cash-secured put is assigned, you'll buy the shares at the strike price.
Out-of-the-Money (OTM) Options: If your sold option is OTM at expiration (call strike > stock price; put strike < stock price), it will expire worthless. This is the ideal outcome for the option seller, as you keep the entire premium received without any further obligation.
Webull's Policies: Webull has policies regarding expiration. They may close your option position on the expiration date if your account doesn't have enough equity to support an exercise or assignment. It's generally recommended to close out any positions you don't want to be assigned before market close on expiration day.
Fees Associated with Selling Options on Webull
While Webull advertises "zero commission" for US options trading, it's important to understand the full picture.
Sub-heading: Beyond Zero Commission
Commission: For most standard stock and ETF options, Webull charges $0 commission.
Contract Fees: However, there can be small per-contract fees. For example, $0.50 per contract on index options and $0.10 per contract for orders above 500 contracts.
Regulatory and Exchange Fees: These are small fees passed through from regulatory bodies and exchanges, and they apply to all brokers. Examples include the Options Regulatory Fee (ORF) and exchange fees. These are typically very small, but they exist.
Margin Interest: If you're trading in a margin account and utilize margin for other positions, you may incur margin interest.
By following these steps and understanding the nuances of selling options, you'll be well on your way to utilizing this powerful trading strategy on Webull. Remember, practice makes perfect, so consider using Webull's paper trading feature to hone your skills before committing real capital.
10 Related FAQ Questions
Here are 10 frequently asked questions about selling options on Webull, with quick answers:
How to apply for options trading on Webull?
You can apply directly through the Webull app by navigating to "Menu" > "Settings" > "Manage Brokerage Account" > "Options Trading" and completing the application.
How to sell a covered call on Webull?
To sell a covered call, you first need to own at least 100 shares of the underlying stock. Then, go to the options chain for that stock, select the desired expiration and strike price for a call option, choose "Sell to Open," and place your order.
How to sell a cash-secured put on Webull?
To sell a cash-secured put, you need to have enough cash in your account to purchase 100 shares of the underlying stock at the strike price. Then, go to the options chain, select the desired expiration and strike price for a put option, choose "Sell to Open," and place your order.
How to close a sold options position on Webull?
To close a sold options position (either a call or a put), navigate to your open positions, select the option you sold, and choose "Buy to Close" to buy it back.
How to check my options approval level on Webull?
Your options approval level is usually indicated within the options trading application section of your Webull account settings, or you may receive a notification after your application is reviewed.
How to avoid assignment when selling options on Webull?
To avoid assignment, you should close your sold options position before expiration if it is in-the-money. This means buying back the option before the expiration date.
How to calculate profit/loss for a sold option on Webull?
For a sold option, your maximum profit is typically the premium received if the option expires worthless. Your loss is the difference between the strike price and the stock's price (plus commissions/fees) if assigned, potentially substantial for naked options.
How to manage risk when selling options on Webull?
Key risk management techniques include: only selling covered calls or cash-secured puts (especially for beginners), starting with small position sizes, using limit orders, setting stop-loss orders on the underlying stock, and actively monitoring your positions to close them if the trade moves against you.
How to understand Webull's options trading fees?
While Webull offers $0 commission for US stock and ETF options, be aware of small per-contract fees for certain options (e.g., index options) and standard regulatory and exchange fees. Always review the fee schedule.
How to learn more about options strategies on Webull?
Webull provides educational resources within its platform, including articles, FAQs, and sometimes webinars. You can also utilize their paper trading feature to practice different strategies in a risk-free environment.
