With April 15th fast approaching, many investors are considering what allocations to give to tax-deferred or tax-deductible retirement accounts. Traders often ask us if they can trade options in their IRA account, and a number of brokerage firms now allow this on a defined-risk basis. Generally option trading is not allowed in 401k/403b accounts, but when/if those are rolled into a self-directed brokerage IRA, the variety of trading vehicles available expands greatly.
Following is what a popular options broker, OptionsXpress, states on their IRA page. They also focus on income generating strategies for retirement accounts.
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- Trade any type of limited-risk options including covered calls, debit & credit spreads, and cash secured short puts
- Use ETFs to trade precious metals like gold and commodities including oil, cotton, and sugar
- Choose from many types of IRAs: Roth, Traditional, Rollover, SIMPLE, and SEP IRAs
Further, another big options broker ThinkOrSwim states on their website:
Individual Retirement Accounts have margin restrictions. Provided your IRA application is approved, 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 or naked short calls. The guidelines for making contributions to these accounts are as follows
Both of these option-specialty brokers do offer auto-trading of BigTrends premium recommendation services, including in IRAs -- because of the limited risk nature of the option purchasing/spread trades that we offer (we currently do not offer and generally do not advise any sort of "naked" option selling). Other brokers are also available for auto-trading, including Trade Monster -- check with our Client Services Department at 1-800-bigtrend for a complete list of brokers that offer auto-trading or with questions.
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/Videos 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 several 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. 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.
Trade Well,
Price Headley