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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1203  
Subject: Re: Options in IRA Acct Date: 3/24/2005 3:03 PM
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rbnelson,

You wrote, I'm unable to short in my IRA account because it requires margin which is not allowed in an IRA. Can you buy put contracts in an IRA acct as an alternative to shorting?

The IRS rules should allow this; but I've not found a broker that will let me do it. I wonder if anyone on this board knows of any?

I would be especially interested in buying calls and puts in my account. My current broker and my last broker would let me sell covered calls; but I found that to be pretty pointless for me. None would let me buy a contract.

My only reasons for buying or selling options in my IRA are hedging and leverage. Buying a put would be useful for me to lock in profits on a stock holding. If the stock declines in value, the option would cover the decline.

Buying a call would let me out-perform/leverage an index with minimal cost. For instance I could buy calls on SPY to leverage my S&P 500 fund holdings. This would probably be cheaper and more reliable than buying into one of the leveraged Rydex funds.

Selling a cash-secured put would let me make a profit on, instead of pay a commission on the purchase of a stock. It seems to be a good alternative to limit orders; but I can almost understand why they're not allowed.

Selling covered calls generate some short-term cash flow; but they risk the premature sale of the underlying security. Of course you can sell OTM contracts with a strike price that matches your price target for the stock; but from my experience, that seems to barely do more than cover the commissions.

While least useful, this last option seems to be the most widely offered. Go figure.

Though they're interesting, I really don't have much interest in using the more complex option strategies... At least not in my IRA.

- Joel
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