Options

Leverage a security's price movement for potential profit.


What is Options trading?

Options trading is the purchase or sale of a contract of an underlying security. Investors can trade options to potentially benefit in any market condition.

An option is a contract between two parties that gives the holder the right, without the obligation, to buy or sell a security during a designated time period at a specified price. The option writer must keep the agreement if the holder chooses to exercise their right.

There are many strategies investors can use in options trading. Each strategy has benefits and risks. Although beginner strategies exist, options are typically used by active traders with investing experience.

Benefits of Options

  • Leverage

    Tends to utilize capital efficiently by participating in an underlying asset's price movement without usually having a position in it

  • Revenue generation

    Potentially earn revenue by selling options for premium

  • Risk mitigation

    Can be used to help hedge against unfavourable market conditions


Things to consider

There are many things to be aware of when trading options. An important consideration to keep in mind is that the option seller (writer) can incur losses greater than the price of the contract. Consider each option strategy itemized below and the risks associated with it.

Variable degree of risk

Transactions in options carry a high degree of risk. Purchasers and sellers of options should be familiar with the option type (put or call) they contemplate trading and the associated risks.1

Description

Option strategy benefits

Option strategy risks

Long Call

In this options strategy, the holder of a Long Call has the right to purchase the underlying security at the exercise2 price at any time prior to expiration.

This strategy has unlimited upside potential.

The risk is limited to the price paid for the option contract or the premium paid for buying the Long Call.

Long Put

The holder of a Long Put has the right to sell the underlying security at the exercise price at any time prior to expiration.

The benefit is limited to the strike price3 minus the premium.

The risk is limited to the price paid for the option contract or the premium paid for buying the Long Put.

Covered Call Write

In a Covered Call Write, the writer buys the underlying stock and writes calls against the holding.

Additional income can be earned by selling the call option against the stock.

Risk can occur when the market price of the underlying stock falls.


Variable degree of risk

Transactions in options carry a high degree of risk. Purchasers and sellers of options should be familiar with the option type (put or call) they contemplate trading and the associated risks.1

Description

Benefit of strategy

Strategy risk

Bull4 Call Spread

This strategy combines a long lower strike call and a short higher strike call with the same expiration.

The benefit is limited to the difference between the two call strikes minus the premium.

Risk is limited to the net debit, or the premium paid for the spread.

Bear5 Put Spread

The Bear Put Spread combines a long higher strike put and a short lower strike put with the same expiration.

The benefit is limited to the difference between the two put strikes minus the premium.

Risk is limited to the net debit, or the premium paid for the spread.

Bear Call Spread

This strategy combines a long higher strike call and a short6 lower strike call with the same expiration.

Limited to the net credit or premium received for the spread. The bigger the difference between the strikes, the bigger the potential profit.

Risk is limited to the difference between the two call strikes. The bigger the difference, the greater the risk.

Bull Put Spread

This strategy combines a long lower strike put and short higher strike put with the same expiration.

The benefit is limited to the net credit, or the premium received for the spread.

Risk is limited to the difference between the two put strikes. The bigger the difference, the greater the risk.

Calendar Spread

The Calendar Spread has the same strikes with different expirations, using either both calls or both puts. Long back month and short front month.

The premium received from the short option minus the profit from selling the long option after the front month expires worthless.

Risk is limited to the net debit, or the premium paid for the spread.

Long7 Combination/ Straddle

This high volatility strategy combines a long call and a long put at the same strike (straddle) or different strikes (combination) at the same expiration.

The benefit is potentially unlimited.

The risk is limited to the cost of the straddle or combination.


Variable degree of risk

Transactions in options carry a high degree of risk. Purchasers and sellers of options should be familiar with the option type (put or call) they contemplate trading and the associated risks.1

Description

Option strategy benefits

Option strategy risks

Short Call

This income strategy involves selling/ writing a call option Uncovered or Naked8.

Potential profit is limited to the premium received when writing the call.

Risk is unlimited, as the market price can potentially rise indefinitely above the strike. This can also be affected by margin requirements.9

Short Put

In the Short Put, an investor sells/ writes a put option Uncovered or Naked.

Potential profit is limited to the premium received when writing the put.

Risk is limited to the strike price minus the premium.

Short Combination/ Straddle

A short call and a short put at the same strike (straddle) or different strikes (combination) with the same expiration.

Profit potential is limited to the premium collected for writing the straddle or combination.

The Short Combination/ Straddle has unlimited risk.


Are Options right for me?

Options may be considered by an investor who:

  • Understands the underlying concepts of options trading
  • Understands the advantages as well as the risks of a chosen investment strategy
  • Knows how to manage a portfolio when reacting to changes in the market

Discover more about Options

Getting started with trading Options

Trading options doesn't have to be complicated. Find out what account types you can trade options in, available option levels and more.


Yes, if you are interested in trading options, you can apply at TD Direct Investing for approval once you become a client.


In the WebBroker platform, clients can place 2-leg options trades online using U.S. securities.


As a holder, you can choose to sell the contract at the current market value (ideally at a profit) or allow the option contract to expire worthless.


  • Call Options – capitalizing on investment knowledge

    • A Call option is your right to buy a security at a specified price by a defined date
    • Your profit is what's left over when the strike price is subtracted from the stock price on or before the date the option expires
    • You pay a premium with a call option which is the price of the right to buy it
    • An option's premium is priced by calculating its value and how much volatility is expected until it expires
  • Put Options – helping you cash in when prices plunge

    • A Put option is the right of the holder to sell a security at a specified price by a certain date
    • The price the Put option owner can sell at is called the strike price
    • When you sell a Put, you get the difference between the strike price and the underlying asset's price
    • You also pay a premium to the Put option's writer when the contract is initiated

Trading Options on the TD app

Discover how you can access comprehensive option chains and trade single or multi-leg options - right on the TD app.


Options pricing: clear and simple

It's the service, support, and overall experience of investing with us that defines the value for you.

  • Standard: $9.99 flat rate to buy or sell

    Canadian & U.S. stocks standard online commission rate.

  • Active trader: $7.00 flat rate

    150+ trades / quarter on Canadian & U.S. stocks, + $1.25 per contract for Canadian & U.S. options

  • What you get:

    • Real-time market data and quotes for the Canadian and U.S. markets
    • Exclusive research reports
    • Educational resources that are online and on-demand

Start investing in Options with TD Direct Investing

  • 1

    Open an account

    Select the TD Direct Investing account you want to open online or book an appointment.

  • 2

    Fund your account

    Transfer funds into your account with the online bill payment or funds transfer feature – or set up recurring deposits.

  • 3

    Start investing toward your goals

    Build your portfolio using ETFs, stocks, options, mutual funds, GICs and more.

Explore other investment types


Open an account online – it's fast and easy

Whether you're new to self-directed investing or an experienced trader, we welcome you.

  • Apply online

    It's easy to open a cash, margin, RSP, or TFSA account.

  • Call us

    We're here for you. Monday to Friday, 7 am to 8 pm ET

    1-800-465-5463 1-800-465-5463
  • Book an appointment

    Let's chat, face-to-face at a TD location convenient to you.


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