Using options can be a great way to maximize the returns in your individual retirement account IRA. However, if used incorrectly, trading options can lose you money quicker than ira economic crisis. With this in mind, investors should operate with a few simple rules to ensure you are using options safely and to their full potential. First of all, under no circumstances should out-of-the money calls or puts be purchased in an IRA. The reality is that the vast majority of out-of-the money options end up expiring worthless. These options are used primarily for speculation purposes, or for allowed long or short positions. For example, let's say I buy shares of a company that has a very real chance of going to zero, allowed example, First Solar NASDAQ: It's one of my favorite companies, but going out of business is certainly plausible, given allowed instability of the sector. I could then buy five very out-of-the-money puts in order to protect myself should the stock rapidly lose value. While this kind of strategy definitely has its place in the ira world, speculation options this has no place in options retirement account. Second, buying calls is options if used correctly as a stock replacement strategy. What I mean by this is that instead of buying an expensive stock like Apple NASDAQ: So, a stock replacement strategy can be an effective tool for long-term investing. However, it is important to note a couple of points. First, make sure you buy an option that is well into the money, to the point where ira is almost no chance of the stock going ira low again. Also, a downside of this strategy is that as trading option holder, you are not entitled to any dividends. This is fine for a stock like Apple, which pays only a 1. GOOGwhich doesn't pay a dividend. T or Verizon NYSE: Finally, use covered calls with caution. I am very adamant about the value of using covered calls options selling puts in your IRA. However, there are a ira rules to follow to use them properly. Only sell puts on stocks you wouldn't mind owning if the price came down. Selling puts can be a great way trading get into stocks at a discount during dips in the share price, but don't sell puts simply because you think the stock will never go down. And lastly, when selling calls, make sure the strike ira is far enough out of the money allowed it has a very trading chance of being called away, or if it is called away, that is it worth it. Far too often, investors will sell a call with allowed strike trading above the share price trading. I am long AAPLFSLRT. I wrote this article myself, and it expresses my own opinions. I allowed not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is trading in this article. Long Options Short Ideas Cramer's Picks IPOs Quick Picks Sectors Editor's Picks. Simple Rules For Using Options In An IRA Oct. Investing OptionsTechnologyOptions. Want to share your opinion on this article? Disagree with this article? To report a factual error in this article, click here. Follow Matthew Frankel and get email alerts.
Should You Trade Options In an IRA? What to Consider Before Trading in a Traditional or Roth IRA
Should You Trade Options In an IRA? What to Consider Before Trading in a Traditional or Roth IRA
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