Overview

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.

To enable options for your existing self-directed investing accounts, follow the instructions below.

Once you successfully complete this step, you'll be able to buy or sell options in any of your options enabled self-directed investing accounts.

More details:

• There is no minimum account balance required.
• You can buy and sell options within a registered account (such as a TFSA), a Margin account, and trade long options within a non-registered account.
• Do not upgrade or downgrade your subscription status while holding open options positions. 
• Options are not yet available on any Canadian or dual-listed securities, as well as indices.
• If you wish to disable options trading, please get in touch with our support team.

Types of options available through Wealthsimple

Wealthsimple offers three options trading strategies: long call options, long put options, and short call (covered) 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.
• As a covered call seller, you have an obligation to sell a stock at a particular price on or before the expiry date. You'll collect a premium for the options you sell in return.  

At this time, we don't support the following option trading strategies:

• short calls (uncovered)
• short puts
• spreads

All options have several components in common:

• Strike price: The price at which you may exercise your long option or be required to follow through on the obligation of a short option.
• Expiry date: The last date that you can exercise your long option or be assigned on your short option. You may exercise your long option anytime before the expiration date and likewise you could be assigned on your short option before the expiration date (see more details on exercise and assignment below).
• Premium: The amount you must pay upfront to purchase your long option, or the amount you will receive for selling an 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.

Buy a long option 

When you place an order to buy an option (a buy to open), you can select whether you would like to submit a limit, stop limit, or market order:

• A limit order's price reflects the maximum amount you’re willing to pay for a premium.
• A market order purchases the option at the best available price.

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: 

Sell a long option

When you place an order to sell a long option (a sell to close), you can select whether you would like to submit a limit, stop limit, or market order:

• A limit order’s price reflects the minimum amount you’re willing to accept as your premium.
• A market order sells your option at the best available price.

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:

Sell a covered call

You can trade covered calls in registered or Margin accounts. You'll also need to upgrade to USD accounts to write calls in a FHSA, TFSA, RRSP, or LIRA.

When you place an order to sell a covered call option (a sell to open), you can select whether you would like to submit a limit, stop limit, or market order:

• A limit order’s price reflects the minimum amount you’re willing to accept as your premium.
• A market order sells the option at the best available price.

Stop limit and market orders are only available on the Wealthsimple website. Limit orders are available on the Wealthsimple mobile app and website. 

For the sale of a call option to be “covered” and eligible for trading on Wealthsimple, you must already own 100 shares of the underlying security. Wealthsimple will automatically check for the availability of these shares before your order is processed.

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 a covered call, follow these steps:

Buy to close a covered call

When you place an order to buy back an open covered call option (a buy to close), you can select whether you would like to submit a limit, stop limit, or market order:

• A limit order's price reflects the maximum amount you’re willing to pay for a premium.
• A market order purchases the option at the best available price.

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 to close a covered call option, follow these steps:

View your option positions

You can view pending option orders and filled option orders by following these steps: 

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: 

Close your long positions

There are three different ways to close your long options 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.

Close your short positions

There are three different ways to close your short options position:

1. Buy to close: This means that you are buying back the contract that you had previously sold. This will release the shares used to cover your call back to you.
2. Let the option get assigned: This refers to following through with the contract by either buying or selling the contracted shares. (For more information on exercise and assignment see the next section.)
3. Let the option expire worthless: If you sold an option and it is out of the money by its expiry date, you can walk away and let it expire worthless. This means that you do not have to pay any fees for selling your contract. After your contract has expired, it will generally be removed from your account within 1 business day.

Rolling options

Rolling an options position means closing an existing option contract and opening a new one with a different expiration date, strike price, or both. You might do this to extend the timeframe of your strategy, adjust to changing market conditions, or manage risk.

Fees for rolling options

Standard options trading fees apply to both the closing and opening transactions involved in a roll.

Types of rolls

You can perform several types of rolls:

• Roll forward/out (same strike, later expiration)
• Roll back/in (same strike, earlier expiration)
• Roll up (higher strike, same expiration)
• Roll down (lower strike, same expiration)
• Diagonal roll (different strike and different expiration)

Understanding the limit price for rolls (debit vs. credit)

When you roll an option, the price you pay, or receive, depends on the difference between the price of the option you're closing and the option you're opening. This is referred to as the net premium, and can either result in a debit or credit to your account.

• A debit means you are paying to roll the position. This happens when the cost of the option you are buying exceeds the proceeds of the option you are selling.
• A credit means you are receiving money to roll the position. This happens when the proceeds of the option you are selling exceed the cost of the option you are buying.

How to roll your options

Follow these steps to roll your options:

1. Log in to your Wealthsimple account
2. From the Home page, scroll down to Holdings
3. Select an options contract position
4. Select the Roll button shown in the contract details
5. Choose your desired roll parameters:
   • Pick a new expiration date from the dropdown menu
   • Choose a new strike price (if rolling up or down)
   • Verify the number of contracts you want to roll
   • Enter the limit price
6. Select Review
7. Confirm your roll order details and submit your order

Modify a roll order

Order modification for roll orders isn't currently available, but coming soon.

Exercise

 If your long option is "in the money" $0.01 or more on its expiry date, Wealthsimple will automatically try to exercise it. Please note that standard Wealthsimple instant funds limits also apply to options trading.

If you have the funds or shares to cover the exercise transaction, they will be reserved in your account after market close on the expiry date. These funds won't be available to trade.

• For long call options this includes the total amount required to exercise the contract, along with a fee.
  • We'll use the balance in your USD account to exercise. If you don't have a USD account, you'll need the CAD equivalent to cover the transaction. The exchange rate may affect the total cost.
• For long put options, the exercise fee will be deducted from the proceeds of the sale of your shares. 

If you don't 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. You must have enough funds or shares to fully exercise all of the contracts within a position. We don’t support partial exercises at this time.

For example, if you have 5 contracts in a position and wish to exercise it:

• For long call options, you will need to have enough cash to purchase 500 shares, along with an exercise fee.
  • We'll use the balance in your USD account to exercise. If you don't have a USD account, you'll need the CAD equivalent to cover the transaction. The exchange rate may affect the total cost.
• For long put options, you will need 500 underlying shares to sell.

Assignment

If your short option is in the money $0.01 or more at 5:30 PM ET on its expiry, you are at risk of assignment. In the case of a covered call, this means you will be obliged to deliver 100 shares of the underlying after market close on the expiry date.

Wealthsimple runs a random lottery process to determine option assignments the morning after expiry. For covered call assignments, shares will be removed from client accounts and proceeds of sale deposited following assignment selection. All unassigned shares will be released back to client accounts ahead of the next trading session.

Alternatives to auto-excercising

If you do not want your in-the-money long 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 long 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 a long 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 long 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 long 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 long 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:

With auto-sell, we will automatically try to sell any in-the-money long options when you don't have the shares or funds available for exercise. Available means you have shares or funds in your account that aren't being used as collateral for other trades. This 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 start to 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.
4. You will receive a notification and confirmation email if your market sell order is successful.

Limitations of auto-sell
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
   We use auto-sell to check the status of your holdings at thirty minutes and ten minutes before markets close. If you have the funds/shares to exercise an option at the time of the auto-sell check, 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.
6. Short options
   We do not currently offer any kind of auto-sell ability for short option strategies such as covered calls.

Turn off auto-sell

Auto-sell is turned on by default when you enable options trading in your eligible Wealthsimple trading accounts. You can switch it off anytime in the options settings.

You can turn off auto-sell in a few easy steps:

1. Log in to your Wealthsimple mobile app
2. Tap the Profile icon at the top-right of your screen
3. Select the Settings (gear) icon
4. Select Automations
5. Select Options
6. Turn off auto-sell for any of your options-enabled accounts

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.