Options vs Stocks at a Glance Feature Stocks Options Ownership Own a share of the company Own the right to buy/sell at set price Cost Full share price Premium only (fraction of share price) Upside Unlimited Amplified (leverage) Downside Can lose entire investment (rare for blue chips) Can lose 100% of premium (common) Dividends Yes — receive dividends No — options don’t pay dividends Time decay No expiration Value erodes as expiration approaches Complexity Low — buy and hold High — strike price, expiry, Greeks Best for Long-term wealth building Speculation, hedging, income generation
How Stock Options Work Call Options A call option gives you the right to buy a stock at a specific price (strike price) by a specific date (expiration).
Example Details Stock: Royal Bank (RY) Current price: $150 Buy 1 call option Strike price: $155, expiry: 3 months Premium paid $3.50 per share ($350 total for 1 contract of 100 shares) If RY goes to $165 Option worth $10, profit = $650 (186% return) If RY stays at $150 Option expires worthless, loss = $350 (100%)
Put Options A put option gives you the right to sell a stock at a specific price by a specific date.
Example Details Stock: Shopify (SHOP) Current price: $100 Buy 1 put option Strike price: $95, expiry: 3 months Premium paid $4.00 per share ($400 total) If SHOP drops to $80 Option worth $15, profit = $1,100 (275% return) If SHOP stays above $95 Option expires worthless, loss = $400 (100%)
Risk Comparison Scenario Stock ($10,000 invested) Options ($10,000 in premiums) Stock rises 20% Gain: $2,000 (20%) Gain: $10,000–30,000+ (100–300%) Stock rises 5% Gain: $500 (5%) Loss: $2,000–5,000 (time decay eats gains) Stock flat No change Loss: $5,000–10,000 (premiums expire) Stock drops 10% Loss: $1,000 (10%) Loss: $10,000 (100% of premiums) Stock drops 30% Loss: $3,000 (30%) Loss: $10,000 (100% of premiums)
Canadian Options Market Exchange What Trades Key Details Montréal Exchange (MX) Canadian stock and index options Primary Canadian options exchange US exchanges (CBOE, etc.) US stock and index options Accessible via Canadian brokerages
Canadian Brokerages That Offer Options Brokerage Canadian Options US Options Commission Interactive Brokers ✅ ✅ $1.00/contract Questrade ✅ ✅ $9.95 + $1/contract TD Direct Investing ✅ ✅ $9.99 + $1.25/contract RBC Direct Investing ✅ ✅ $9.95 + $1.25/contract CIBC Investor’s Edge ✅ ✅ $6.95 + $1.25/contract Wealthsimple ❌ ❌ N/A NBDB ✅ ✅ $0 + $1.25/contract
Common Options Strategies Strategy Risk Level Description Best For Buying calls High Bet stock goes up Bullish speculation Buying puts High Bet stock goes down Bearish speculation, portfolio insurance Covered calls Low-moderate Own stock, sell calls for income Income generation on stocks you own Protective puts Low Own stock, buy puts as insurance Downside protection Cash-secured puts Moderate Sell puts on stock you want to buy Buying stocks at a discount Iron condor Moderate Sell both call and put spreads Profiting from low volatility
Tax Treatment in Canada Aspect Stocks Options Capital gains 50% inclusion rate 50% inclusion rate (for most buyers) Losses Can offset capital gains Can offset capital gains TFSA/RRSP eligible Yes — stocks and ETFs Limited — must be qualified, covered calls allowed Business income risk Rare for buy-and-hold Frequent traders may be taxed as business income (100%) Options premium (seller) N/A Income when option expires, capital gain/loss if exercised
Who Should Trade Options? Investor Type Stocks Options Beginner ✅ Start here ❌ Too complex Long-term buy-and-hold ✅ Core strategy ❌ Unnecessary Income investor with large portfolio ✅ Dividend stocks ✅ Covered calls for extra income Experienced trader ✅ Core holdings ✅ Hedging and speculation Speculator ❌ Too slow ✅ Leveraged bets
Frequently asked questions Are options taxed differently than stocks in Canada?
Yes. Stock gains are taxed as capital gains (50% inclusion rate for individuals). Options are treated as either capital gains or income depending on whether you are a trader or investor — CRA may treat frequent options trading as business income (100% inclusion). Options in registered accounts (TFSA, RRSP) grow tax-free, but CRA restricts certain high-risk options strategies in registered accounts.
Can you lose more than your investment with options?
With long options (buying calls or puts), your maximum loss is limited to the premium paid. With written (short) options, especially naked calls, losses are theoretically unlimited. This is why margin accounts are required for options writing, and why beginners should focus only on covered strategies (e.g., covered calls on stocks you own).
Are options available in a TFSA in Canada?
Yes, some brokers allow limited options strategies in TFSAs. Covered calls (writing calls on underlying stock you hold) are generally permitted. Naked options, spreads, and complex strategies may not be available in registered accounts. Questrade and Interactive Brokers are among the brokers that support TFSA options.
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