Options Strategies And Your IRA Account

I am not a registered investment adviser. You can buy call and put options with an IRA. With a put option, the buyer has the right to sell shares of the underlying security at a specified price for a specified period of time. If you just use cash secured puts you never have to worry about assignment as there is always enough money to cover the assignment. Mail in 3 to 5 days—based on your delivery preferences. There are additional costs associated with option strategies that call for multiple purchases and sales of options, such as spreads, straddles, and collars, as compared with a single option trade.

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To trade options in your IRA brokerage account, you must obtain authorization from the brokerage firm. Request and complete the options authorization application and disclosures. The broker will add the options trading authorization to your account after reviewing your paperwork. You will be assigned a trading authorization level that determines the types of options strategies you can use.

IRA accounts can be given either level 1, 2 or 3 trade authorization. The higher the level, the riskier the options strategies you can use in your IRA.

Since the IRA rules do not allow margin trading, the types of options strategies allowed in an IRA are limited to those that do not require margin coverage. The level 1 options strategy is covered call trading. The main level 2 strategies are buying call or put options and cash secured puts -- an equivalent strategy to covered call writing. Level 3 authorization allows options spread strategies with defined risk profiles.

Each broker sets its own limits on which options strategies are allowed in an IRA account. Check with your broker to see which strategies will be approved for your account. The most important of them indicates that funds or assets in a Roth IRA may not be used as security for a loan. Roth IRAs also have contribution limits that may prevent the depositing of funds to make up for a margin call , which places further restrictions on the use of margin in these retirement accounts.

These contribution limits change each year. These do not apply to rollover contributions or qualified reservist repayments. These IRS rules imply that many different strategies are off-limits. For instance, call front spreads, VIX calendar spreads , and short combos are not eligible trades in Roth IRAs because they all involve the use of margin.

Selling naked calls or naked puts, which are contracts not secured by assets you own, are two actions that wouldn't be permitted with IRA funds. Breaking this rule can be very expensive: The IRS may disqualify the entire IRA, and all of the money in it would become fully taxable in the year the prohibited transaction occurred. You may have to pay penalties as well. You can buy call and put options with an IRA.

Calls confer the right to buy shares at a guaranteed strike price. If the price per share rises above the strike price, you purchase the shares by exercising the option and then sell them at the higher market price. Puts give you the right to sell shares at a guaranteed price.

If the per-share price drops, you can buy the shares at market price and use the put option to sell at the higher strike price. You can sell options contracts instead of buying them.

Why Use Options?

Top 15 Questions about Trading in an IRA. Updated: Apr 30th, You can sell cash secured puts in your IRA if you have approval for that level of options trading from your broker and you have enough cash in your account to buy the requisite amount of the underlying security ( shares per option) if your puts are assigned. Do you have an IRA account and want to trade options? Here are our Top 7 Tips you have to hear before you get started. How to Add Options Trading to Your Account (PDF) and, if requesting the ability to trade spreads in an IRA, the Supplemental Options Spread Agreement and send to: Fidelity Investments PO Box Cincinnati, OH What to expect.