Covered Calls and Cash Secured Puts (Part 4)

In the last post, I argued that CCs and CSPs are less risky than owning stock outright. People are often surprised by this because some brokerages suggest otherwise.

Certain brokerages in the past did not allow CSPs or any option trading in retirement accounts.  I found a number of links on-line devoted to the subject.  This article from a few years ago talks about Scottrade.

This article is from 2013 and describes trading restrictions in an IRA.  The article writes:

> The only universal restriction is tied to IRS rules that do not allow
> borrowing from an IRA account.  This restriction blocks short
> selling, leverage using margin, and the sale of naked put or call
> options.

Since CCs and CSPs are less risky than outright stock, why should they not be allowed in retirement accounts if long stock is?  They should.

This article discusses some possible reasons for the illogic.

> The higher suitability standards in an IRA makes the firm concerned
> that even though the strategy is safer than buying the stock, it’s more
> complex, and the duty to ensure that the client understands the
> risks… makes it not worth offering.
>
> The firm’s systems can’t differentiate between cash-secured put
> writing and other types of put writing that are not appropriate for
> IRAs (naked put writing, covered put writing against short stock,
> etc.)
>
> The firm’s permitted options strategies for IRAs have not been
> changed in many years. This is the most common one. Most firms
> established covered calls, or covered calls and protective puts as
> the only strategies they’d allow when they first became IRA
> custodians, and simply haven’t changed them since.

In my opinion, the tide seems to be changing as time goes by and this is good news for traders/investors.  TradeKing was a holdout that did begin to allow CSP Trading in IRA accounts a couple years ago.