BigTrends

Many traders we talk to are asking if they can trade options in their IRA account, and a number of brokerage firms now allow this on a defined-risk basis.

For example, here's what www.ThinkorSwim.com states on their home page as of today:

" * TOS IRAs are restricted margin accounts. Provided your IRA application is approved by thinkorswim, you can trade any complex option strategy you like as long as the resulting position has defined risk. We do not allow for short stock, naked short calls or futures. There are limitations, restrictions, and tax implications in connection with the use of options as an investment strategy in a retirement account such as an IRA. These may include legal and accounting issues, and use of margin and margin payments to cover losses. Complex option strategies including those that are multi-leg strategies involve multiple commission charges and thus the transaction costs of such strategies should be considered when assessing the potential of such a strategy."

Another popular options broker, www.OptionsXpress.com, states this on their IRA page:

"Yes, we allow trading of equity and index options in IRAs based on the trading level assigned to an investor. Trading in IRAs includes call buying, put buying, cash-secured put writing, spreads, and covered calls.... Anyone considering trading options in a retirement account may wish to read the CBOE's publication on options trading strategies in IRAs and Keoghs."

So should you trade options in your IRA? That's a highly personal decision, and the biggest thing I recommend all options traders do before venturing into any form of options trading is GET EDUCATED! Options involve risk, and for a long time, the big brokerage firms shunned options and did not allow options trading in retirement vehicles, for fear of future liability of the client blew up their own portfolio. Thankfully, times have changed to give the individual investor more options (pun intended!).  Of course, at BigTrends, we're always focusing you on how to manage and reduce your risk, and we have a number of educational DVDs to help you define specific strategies to let you learn how you can manage your options trading more effectively in any type of account. And we also offer specific options recommendation services which can be traded in an IRA as well at certain brokerage firms.

Of course, with the haircut that many investors took in the past couple of years if they were simply buying and holding the market, many educated individuals are now looking for a way to actively return their portfolio to their prior highs or better. The tax-deferred status of retirement vehicles like IRAs makes them even more attractively suited to short-term trading, and this attraction will only grow when Obama lets the current low capital gains rate law expire, effectively raising capital gains rates in 2010 and beyond. So you owe it to yourself and your portfolio to consider whether options in your IRA makes sense based on your own goals and risk profile, as well as any other unique circumstances you may need to personally consider.

P.S. Of course, you should consider this information educational only in nature, and not a specific recommendation. Make sure to consult with your financial advisers for matters pertaining to your own unique financial situation.

Catchy title from a Marketwatch article today (linked at bottom of entry):