What is the difference between options and stocks?

When you buy a stock, you own a piece of a company. When you buy an option, you own the right (but not the obligation) to buy or sell a stock at a specific price by a specific date. Stocks have unlimited upside and your downside is limited to your investment. Options can amplify returns but can expire worthless — you can lose 100% of the premium paid.

Can you trade options in Canada?

Yes. Canadian options trade on the Montréal Exchange (MX). You can also trade US options on US exchanges through Canadian brokerages like Interactive Brokers, Questrade, and some bank brokerages. Not all platforms support options — Wealthsimple does not offer options trading.

Are options riskier than stocks?

Yes, options are generally riskier. A stock can decline but still retain value. An option can expire completely worthless if the stock does not move in the expected direction by the expiration date. However, when used for hedging (protective puts), options can actually reduce portfolio risk.

Options vs Stocks in Canada (Comparison Guide)

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	✅	✅	$0 on most contracts (Questrade, verified August 2026)
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.