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Hey everyone, Kirk here again at Option Alpha and welcome back to the daily call. Today, we are going to be talking about the basics of trading options in your 401K account or your IRA account. Most people obviously want to trade options, but you might think that it's hindered by the ability to trade options in your retirement account or 401K. The reality though is that it’s actually very easy to trade options in these accounts as long as you either go with A, the right broker or B, have the right trading approval levels. We’ve talked about this before in the past, but approval levels are different levels that allow you to trade more and more complex option strategies. Most brokerages when you start out with a brokerage account and fill out the questionnaire about risk and what you’re trying to do with the account, basically, they’re trying to assess what type of risk they should allow you to have, what type of options trading approval level they should grant you. When you fill out this, most brokers generally start you with the lowest approval level which I don’t necessarily agree with, but the lowest level which is usually level one approval which means that you can trade covered calls and covered puts, things like that. You can trade very basic option strategies. What you want to do though is you want to quickly work up to the higher trading approval level. Call your broker. Listen to our weekly podcast that we have on options trading approval levels which we definitely have on the website and you can search on optionalpha.com on how to get up to those level three, level four type approval levels which means that you’re basically open to trading as much as possible within the restrictions of the account. You want to do that because you want as much flexibility as possible. Even if you don’t think that you’re going to be trading some of those strategies, you still want the ability to trade them. You want to have them in your back pocket if in the case of one market environment you need to make that trade or not. You want to have the ability to have it right there at your fingertips and not have to wait and go through an approval process. The first thing is always just to work your trading approval level up as high as possible. The second thing you have to understand is that most brokerages should facilitate the trading of options in your IRA or 401K. If they don't, you need to move that IRA or 401K to a more options-friendly broker. Yes, that might be a little bit painful as far as paperwork and the process to move it. It might take you a week or so to get everything transferred over. But ultimately, for the sanity of your long-term portfolio or for the stability of your portfolio, it’s worth going to a more options-friendly broker, so that you have the ability to trade it. Now, the basics of trading options in an IRA is only that you have to do everything on a risk defined basis. Some brokers are a little bit different on this rule, but the general rule is that you have to do everything risk defined. You can’t have any lingering naked short positions. You can do long call options, long put options where you’re paying money and getting into an option contract, but you can’t do any naked shorting of any kind. That means you can’t do any selling of call options, selling of put options without creating a risk defined counterpart. This only means that in most cases, your IRA or 401K is required to have spreads at pretty much all times. If you’re going to be an option seller, you just have to do everything within the context of spreads, so credit spreads, iron butterflies, iron condors, calendar spreads, etcetera. This is good because this actually allows you to actually still do a lot of trading that you couldn’t otherwise do in most brokerage accounts. What we do at Option Alpha is when we send out a trading alert if we do a straddle or a strangle, we also give you basically the framework for how to build out that trade in the trading alerts to do an iron condor or an iron butterfly if you’re trading in a risk defined account. Again, it’s always just as simple as adding some very cheap out of the money protection to create a spread. You can replicate the same types of strategies that I might be able to do in a margin account or somebody might be able to do in a portfolio margin account. You can replicate those same types of strategies by just adding a long call option or a long put option to create a risk defined spread. For example, if we are trading a straddle and we sell the 100 strike straddle, meaning that we’re selling the 100 strike call and the 100 strike put, we can do that in a margin account because we can cover it with margin. In a 401K or IRA account, you’d have to do that as a risk defined spread. You can take the core fundamental trade that we’re doing which is the straddle, do the same thing, but then add let’s say a 110 call option and a 90 strike put option. You effectively are creating an iron butterfly using the same inside short strikes of 100 that we’re doing and it’s basically like a synthetic straddle, although you just have really cheap protection bought at 110 on the call side and 90 on the put side. Those options on either end might cost you $5 or $6, so your overall profit might go down by $10, but at least, it allows you the flexibility to trade in that retirement account whereas you otherwise couldn't have done it if you didn't create a risk defined spread and strategy. Hopefully it helps out. Again, it’s not really too much more complicated after that. Really, that's the big thing that you have to understand about retirement accounts, is making sure that everything is risk defined. Otherwise, you should be pretty much wide open to trade anything you want at any time that you want as long as you have the higher trading approval levels that we mentioned. As always, if you guys have any comments on this or any questions, let us know. Until next time, happy trading!