Tax Day is coming soon and many options trading investors are deciding what allocations to give to tax-deferred or tax-deductible retirement accounts. Many investors wonder if they can trade options in their IRA account, and a number of brokerage firms now allow this on a defined-risk basis.
Generally, options 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. Some of the major options brokers have material on their web sites on options trading and IRA accounts
Broker OptionsXpress writes on its site that it provides focus on income generating strategies for retirement accounts:
Take control of your retirement account Today
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
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.
So should investors trade options in their IRA? That’s a highly personal decision, and I recommend all investors get educated before venturing into any form of options trading. 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, 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. 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.