Options Trading in Canada: Getting Started, Costs and Account Rules

Options give you the right — not the obligation — to buy or sell an asset at a set price before a set date. Used carefully, they can limit risk or generate income. Used carelessly, they're one of the fastest ways to lose money.

The basics

• Call option: the right to buy at the strike price. Profits if the underlying rises above strike + premium.
• Put option: the right to sell at the strike price. Profits if the underlying falls below strike − premium.
• Premium: what you pay (or receive, if you sell). One standard contract usually covers 100 shares.
• Expiry: options lose time value as expiry approaches ("theta decay").

Buying options caps your loss at the premium. Selling (writing) options earns premium but can expose you to large losses unless covered by shares you own or cash set aside.

Where Canadians trade options

• Montréal Exchange (MX): options on Canadian large-cap stocks, ETFs and the S&P/TSX 60 index. Liquidity is good in the biggest names and thin elsewhere — use limit orders.
• U.S. exchanges: far deeper markets. Most Canadian brokers offer U.S. options; trading them in a CAD account adds currency conversion costs.

Options levels and account types

Brokers assess your experience and grant a trading level — from covered calls only, through buying options, to spreads and uncovered writing. Registered accounts (TFSA, RRSP, FHSA) generally allow covered strategies and buying calls/puts; margin-dependent strategies require a non-registered margin account.

Costs

Options pricing at Canadian brokerages ranges from well under $1 per contract at low-cost brokers to $9.99 + $1.25 per contract at some bank brokerages. Also watch the bid/ask spread, which is often the biggest cost in less liquid options.

Worked example: buying a call vs owning shares

Suppose a TSX-listed bank trades at $100 and you're bullish for the next three months.

• Buy 100 shares: costs $10,000. If the stock rises to $110 you gain $1,000 (10%); if it falls to $90 you lose $1,000.
• Buy 1 call, $105 strike, 3 months, premium $2.50: costs $250. At expiry, if the stock is $110 the call is worth $5 × 100 = $500 — a $250 profit (100%). If the stock is below $105, you lose the whole $250.

The call gives you leverage with a capped loss, but you need the stock to rise enough, soon enough. Time decay works against option buyers every day.

Covered calls: the most common registered-account strategy

Owners of 100 shares can sell a call against them to collect premium. You keep the premium whatever happens, but if the stock rises above the strike you'll have to sell your shares at that price. It's a way to generate income on stocks you'd be willing to sell — and it's usually permitted in TFSAs and RRSPs.

Options and U.S. dollars

Most Canadians' options activity is on U.S. underlyings. Trading them in a CAD account means paying conversion spreads on every premium. Consider a USD account, and see cheap ways to convert CAD to USD.

Tax basics

In non-registered accounts, options gains and losses are generally capital (or business income for frequent traders). Premiums from writing options have specific timing rules. Keep good records and see our tax guide.

Not the same as binary options

Listed options trade on regulated exchanges through registered dealers. Binary options — fixed-payout bets over minutes — are prohibited for individuals in Canada. See binary options in Canada.