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Option Selling In Your IRA
May 28th, 2009 
Genius Here is another email from a member that I thought you could learn from:
I just found out in my IRA account at Schwab, I can not trade any option spreads or Iron Condors on any Index.
My response:
It is not that you cannot trade these in your IRA. It is that Schwab will not let you. Big difference. I trade these in my IRA all day long and twice on Sundays. (joke).
If you are willing to switch brokers you can as well.
Big name brokers like Schwab like to protect themselves. They know that the general public is not sophisticated enough to be able to trade options much less sell options so in order to “protect” their customers they limit what types of trades you can do in your IRA account.
If it’s my money, I should be able to do whatever I want with it.
I used to have an IRA account at Fidelity. I had to “qualify” to be able to sell options in that account. There are different levels of options qualifications. They actually asked me several questions about my option trading experience before I could sell options in that IRA account.
Even then, I was severely limited in what types of trades I could do. Covered calls and credit spreads were OK, anything more complicated was not. Their order screen would not even take an option trade with more than 2 options.
So I switched my IRA (which is a Roth IRA in case anyone was interested), to an option friendly broker. No hassle, no questions, no fuss. My account was opened and I can do any trade I want. Even futures!
Selling options and complex trades are allowed in your retirement accounts. The bigger brokers do not allow it because they do not want to get sued if you blow up your account. But there are other brokers who do allow it.
I even know people with Real Estate in their IRA account.
May I ask what “option friendly broker” did you switch too? Also is there some difference in requirements for selling and buying options between a traditional ira versus a roth ira, because you said you switch your ira.
Thanks,
Ken M.
In terms of selling options a Roth and a Traditional IRA are both the same. You can do these trades in both if your broker allows it.
You can ask who my broker is, but unless you are a member, I won’t tell you.
This may sound like a dumb question but I don’t understand why one would want to sell call options when they can buy puts (and limit risk) if they are bearish on a stock?
Ken,
If you can predict the direction of the stock, how much it will move, and by when, then buying a put is your best bet. If you miss on any of those three you lose.
Or, you can just sell a call OTM and as long as the stock does not end up above your call price on expiration you make money. The stock could go down, do nothing, or even move up a little. You have a lot more room for error, and you get to play the part of the house/casino instead of the gambler.
Does your broker allow you to sell naked puts in your IRA/Roth? If so, do you need to have enough cash set aside in the account to cover your put sell in case you are assigned the stock? My understanding is that you cannot have margin in an IRA or Roth. Is this correct?
Fred
Fred,I have experiences in selling naked puts in retirement accounts.I did quite bit of selling,namely cash-carried puts,or covered puts.I had to have 100% fund to do the trade. For instance, I sold 3 contracts of cvs100910p70 not too long ago. I got a credit,but they held $21000.00 for maintenance until I closed the position..I intended to purchase CVX below 70 for a bargain if I could get,but if not I would get an income.The risk is if CVX has a free fall like BP, it would be a disaster for me.
Therefore,it depends on your plan.Naked put selling is usuallly a way to purchase a quality dividend stock at a lower price. If you simply want income, maybe sell a put spread and some brokers like Fidelity and Opitionshouse allow you to do spreads in a retirement account.
For Canadians, holding most types of options inside a Registered Account is a problem though. My broker would love to have all types of options inside Canadian Registered Savings Accounts (RRSPs, RESPs, TFSAs) but only permits purchase of Calls and Puts and writing Covered Calls due to Canada government regulations. I am surprised that the broker can do that much inside Registered accounts, because Section 22 of Canada Tax Interpretation Bulletin IT-320R3 specifically states that the purchase of a put inside a registered account is NOT a qualified investment. Buying Calls is permitted because they give you the right to acquire property. Buying Puts is supposedly not permitted because they give you the right to dispose of property, and registered plans are not supposed to hold investments that only give the right to sell (dispose) a property.
I cannot say anything about Canadian accounts because I don’t know. But brokers have been lying to their customers in the states for a while now about what can and cannot be done in an IRA.
Schwab is option ignorant. They refused to authorize Covered Call option selling in a non-IRA account for an associate. Almost any broker is better than Schwab for option trading.
I am very interested in options, and I like the way You, The Genius approach this type of trading. I’m trying to understand, but I’m still very far from doing my own trades. Is it possible to put IRA money in an your Automatic Options account? How do I transfer the money and which brokers do this type of transaction? I understand I have to be a member, but I want to make sure this can be done, before I sign up.
You may e-mail me…this does not have to be a public answer.
Thank you!
Yes you can do these trades in an IRA account. But most of the large stock brokers will not allow it.
You need to find an option friendly broker that is willing to let you trade your own money how you desire.
I get really upset when people tell me they cant do these trades in an IRA because their broker lied to them and said it could not be done.