#23 - Options Trading In An IRA
Hey everyone, Kirk here again and welcome back to the daily call. Today, we’re going to be talking about trading options in an IRA. I think the real quick synopsis around this just to answer this as quickly as possible really because we don’t need to really harp on it too, too much. But trading options in an IRA is definitely something you can do. You have to get broker approval to do it and that means just getting the required options level for brokers to be able to do it. Most of the time, they’ll allow most people at a level one or two which means you can trade some covered calls, some covered puts. But you do want to try to get those higher option approval levels that allow you to do spreads and even to do complex strategies, iron condors, iron butterflies. The thing with any IRA or retirement account is that most of it has to be risk-defined. You will probably never find a broker who will allow you to do naked trading, meaning a single short put option or a single short call option in an IRA or retirement account, but they will allow you to do spread trading. Anything that you can accomplish with options, you can basically do in an IRA as long as it’s risk-defined, that you have defined risk and defined profit. Now, for me… Because I do a lot of my trading basically naked with straddles and strangles, really the majority of it, maybe not a lot of it or it’s definitely not 90% of it, but the vast majority, we do straddles and strangles and those types of trades. You can basically synthetically create those types of trades in an IRA by just purchasing far out of the money long options on either end for very cheap, $5, $10 on either end. If I were to sell a straddle for say $250, you could convert that into an iron butterfly and sell the same straddle that we’re doing for $250, but then you use part of that $250 credit to purchase long options on either end, far out of the money puts and far out of the money calls and maybe you spend $15 on those total. Now, you just take that net credit difference. I would generate a little bit more money, but I’d also have a little bit more risk because I’m doing it undefined risk as you would also have defined risk on your trade. But it would be something you could do in an IRA account. This is also something that we do with part of our trading alerts under the pro and elite membership. Whenever I send out a trade and if it’s an undefined risk trade like the straddle example we just gave, I will also give out the examples and suggestions of which strikes you can buy or which strikes you can sell to create a risk-defined position. That way, no one is left in the dark. I obviously recognize that I don’t do those, but I know that people do and that’s why we setup our system and our alerts to do that. As always, hopefully this helps. Until next time, happy trading!