Before you can trade options with Wealthsimple, you have to apply to enable your accounts. If this step is not completed first, the option to trade options may be greyed out on your profile. This is because we want to make sure that anyone trading options with us fully understands how they work and what risks they carry. The application process is simple: when you will try to buy your first option, we will prompt you to get started with 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 this step, you'll be able to buy or sell options in any of your self-directed trading accounts using the Wealthsimple app.

More details:

• There is no minimum account balance required.
• Currently, options trading is only available through the Wealthsimple mobile app, in your DIY accounts.
• You can buy and sell options within registered accounts as well as non-registered accounts.
• Do not upgrade or downgrade your subscription status while holding open options positions. 
• 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

Wealthsimple offers two options trading strategies: long call options and long put options.

• Long call options give you the right (but not the obligation) to buy a stock at a particular price (the strike price) on or before a particular date (the expiry date). They’re useful if you think a stock is going to increase in price.
• Long put options give you the right (but not the obligation) to sell a stock at a strike price on or before the expiry date. They’re useful if you think a stock is going to decrease in price.

Both long call options and long put options have several components in common:

• Strike price: The price at which you can exercise your option.
• Expiry date: The last date that you can exercise your option. You may exercise your option anytime before the expiration date.
• Premium: The amount you must pay upfront to purchase the option. Premiums display the cost per share, however, a single option contract represents 100 shares. This means that your total premium will be 100 times the amount per share. 

They can also both use the following terms to describe their state: 

• In-the-money: A term used to describe options that are profitable to execute.
• At-the-money: A term used to describe an option if the strike price is equal to the current price of the underlying asset.
• Out-of-the-money: A term used to describe an option price that is not profitable to execute.

Buying 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.

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: 

1. Log in to your Wealthsimple mobile app
2. Tap the Search icon at the bottom of the screen
3. Under Options, tap Get started with options
4. Select the stock that you want to trade options on
5. Tap Buy 
6. Select Buy options
7. 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
8. Once you’re happy with the selected contract, tap Buy option
9. Choose your desired account and tap Continue 
10. Enter the number of contracts you want to purchase and tap Continue
11. Choose your limit price and tap Continue
12. Review your order details and Place order

Selling 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:

1. Log in to your Wealthsimple mobile app
2. Tap the Invest tab at the bottom of your screen
3. Select the account where you hold the option
4. Under Portfolio, select the stock
5. Scroll down to your contracts and tap View options
6. Under the option you want to sell, tap View option details
7. Tap Sell at the bottom of your screen
8. Choose your account and tap Continue
9. Enter the number of contracts you want to sell and tap Continue
10. Enter the lowest price you’d sell this contract for and tap Continue
11. Review your order details and Place order

Viewing 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

Cancelling 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: 

1. Log in to your Wealthsimple mobile app
2. Tap the Settings tab at the bottom of your screen
3. Select Activity
4. Tap the pending option you want to cancel
5. Select Cancel order
6. Select Yes, cancel

Closing your position

There are three different ways to close your position: 

1. Sell to close: This means that you are selling the same option contract that you own on the marketplace. 
2. Exercise your option: This refers to following through with the contract by either buying or selling the contracted shares. (For more information on exercising your options with Wealthsimple, see the next section.)  
3. Let the option expire worthless: If you purchased an option and you are out of the money, you can walk away and let it expire worthless. This means that you do not have to pay any additional fees, the way you normally would when you exercise an option. You also do not have to pay fees for selling your contract, as you’re letting it expire. After your contract has expired, it will generally be removed from your account within 1 business day.

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.

Alternatives to auto-excercising

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.

Auto-sell: an easier way to manage exercise and expiry

One of the challenges of options trading — especially for those dealing with a lot of shorter-term contracts — is staying vigilant. Before your in-the-money options contracts expire, you might want to sell them or have the cash on hand to exercise. It’s a lot to stay on top of, which is why we created auto-sell, which helps you realize the value of your in-the-money positions even when you aren’t monitoring the market.

With auto-sell, we will automatically try to sell any in-the-money options when you don’t have the shares or funds for exercise. That way, you don’t have to worry about losing potential gains simply because life got in the way. Here’s how it works:

1. Thirty minutes before markets close (starting at 3:30 p.m. EST, 12:30 p.m. EST on early closure days) we’ll search for any options you have that are in-the-money and expiring that day.
2. We’ll check your accounts to see if you currently have the necessary cash or shares to exercise any expiring options. If you do, those options will be exercised if they close in-the-money.
3. If you don’t have the funds or shares when we check, we’ll try to sell those positions for you.

Limitations of auto-sell
Auto-sell is still in beta, and we are constantly working to improve it to maximize its effectiveness, so stay tuned for future improvements. In the meantime, there are some cases in which auto-sell is currently limited. They include:

1. Insufficient demand
   If there isn’t a market for an option, we cannot automatically sell it on your behalf. This typically occurs in low-liquidity situations — where certain contracts do not trade very often or have a limited number of buyers and sellers.
2. Last-minute inflows and outflows
   Although we’re working to improve this, we use auto-sell to check your holdings only once, about thirty minutes before markets close. If you have the funds/shares to exercise an option at that time but withdraw/sell them before the option is exercised, we will not automatically sell your option. Conversely, if you do not have the funds/shares available when we check your account, yet you add enough funds/shares to exercise the option before market close, we will still automatically exercise your option.
3. Late in-the-money movements
   If your option contract moves from out-of-the-money to in-the-money after our auto-sell check, we will not automatically sell the option.
4. Pending limit sells
   If you have a pending limit sell on an options contract and your account has insufficient funds/shares to exercise it at the time of auto-sell, your contract will not be automatically sold. This ensures that auto-sell does not interfere with your existing trading plans. However, if you have a pending limit sell in place for the underlying shares of a put option contract and you don’t have sufficient remaining shares for exercise at the time of auto-sell, we will still attempt to sell the option.
5. Insufficient sale value
   If the proceeds from the sale of your in-the-money contract would be less than the associated fees and commissions, we will not auto-sell your contract.

Opting in to auto-sell
You may currently opt-in to auto sell with this form. After we process your opt-in, we’ll send you a confirmation email.

During the beta, the following conditions apply:

• Once you’ve opted in, we will enable auto-sell for your positions across all of your options-enabled accounts.
• Any options-enabled accounts opened after your initial enrollment will not have auto-sell enabled. Please re-submit the form to opt-in your new accounts.
• If you change your account type subscription (i.e. enabling/disabling USD accounts) after opting in, your updated account will not have auto-sell enabled. Please re-submit the form to opt-in your new accounts.
• Auto-sell will not be mentioned within the in-app expiry policies. But if you signed up and received a confirmation email, you can trust that it is enabled.
• You will receive a notification and confirmation email if your market sell order successfully completes.

Pricing

Please see our fee schedule here.

Tax implications of trading options

The tax implications of options trading will be dependent on whether or not the transaction is considered income (business income or loss) or capital (capital gain or loss).

If the transaction is considered income, any gains you make will be included in your income and taxed at your marginal rate while any loss is deductible against all income sources (e.g., employment income, business income, capital gains, etc). If the loss cannot be deducted in the same tax year, it can be carried forward 20 years or carried back 3 years.

If the transaction is considered capital, half of the capital gain is taxable and is to be included as income while half of the capital loss is deductible and the loss can only be used to offset taxable capital gains. If the loss cannot be deducted in the same tax year, it can be carried forward indefinitely or carried back 3 years.

It's also important to remember that trading in a registered account such as a TFSA or RRSP could constitute a business activity depending on the circumstances. In this case, you would be subject to income tax on any income earned.

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. 

Learn more about PFOF and Wealthsimple.