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trepanne,

I wrote, Actually, you should be able to select any security with option coverage and buy Calls in one account and Puts in the other - this is a common options strategy sometimes referred to as a long straddle strangle, sans the multiple accounts. The Put and Call positions should be almost exactly offsetting; but however you construct it, you stand to loose everything on both positions.

To which you replied, this is one of the first things i thought of, and it's pretty good, but violates the "riskless" condition needed to qualify as arbitrage.

you can refine this by selling the same straddle outside the roths, in a regular taxable account... that way, if you lose on the long straddle, you've just effectively made a tax-free distribution (minus the commissions/fees/bid-ask spreads)...


I assume you mean you can straddle long across the IRAs and then short the straddle in a taxable account.

I think you're wrong about one thing. If you loose everything on the IRAs and make it up in the taxable account, you won't get a tax-free distribution. You'll effectively get a penalty-free distribution; but the IRS will take taxes on the entire gain in your taxable account. And the gain will be short-term, so you'll pay the same in taxes.

Finally, ... and if you still have excess capacity to make tax-deferred contributions, you can just recycle the profits on the short straddle right back into your traditional IRA, making the whole thing a wash...

That wouldn't work for me. I'm not eligible for tax-deferred traditional IRA contributions because I participate in a 401(k) plan.

- Joel
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