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Potential Benefits of Spread Trading in IRA Account

Potential Benefits of Spread Trading in IRA Accounts

Key Points
  • Spread strategies can be used for income generation and speculation.

  • Options spread trading is available in IRA accounts at Schwab.

  • Trading spreads at Schwab requires Level 2 options approval. Apply here.

     

As someone who utilizes options trading strategies, you probably already know about the advantages, characteristics, and risks of options spread strategies.  Now, you can use these types of strategies in Individual Retirement Accounts (IRAs) at Schwab.   Here are just a few example strategies available to you: 

Income generation strategies designed for bullish, bearish, and neutral  forecasts

  • As a way to generate income, many clients sell Cash-Secured Equity Puts (CSEPs) they would not mind owning.  This can be an effective income strategy, but selling put spreads can also generate income while potentially reducing risk versus the CSEP strategy.  If you typically sell CSEPs and are neutral to bullish on an individual stock or ETF, consider selling out-of-the-money vertical put credit spreads to generate income.
  • It can be a bit challenging to take bearish positions in IRA accounts since trading regulations disallow shorting individual equities.  If you are neutral to bearish on an individual stock or ETF, and you’re looking to generate income, selling out-of-the-money vertical call credit spreads is a strategy available in your IRA. 
  • If you think an individual stock or ETF will stay within a defined price range, selling iron condors is one of a short list of strategies that could potentially generate portfolio income. 

Lower cost speculation

For clients who utilize long options for speculative reasons, there are alternatives.  Trading vertical debit spreads, instead of simply buying long options, is one way to partially offset your speculation costs (it will however limit your maximum gain on the trade). 

As with any equity spread strategy, there is assignment risk with short options positions.  This means you could be obligated to sell shares of an equity/ ETF you may not own (in the case of short calls) or buy shares of an equity/ ETF (in the case of short puts).  So, it’s important to monitor your positions closely.  Also, keep in mind that trading options spreads in IRA accounts at Schwab requires Level 2 options approval, a minimum of $25K in account equity, and enough cash available to cover the options spread requirements. 

To take the next step:

If you feel this strategy is appropriate for you and would like to apply for spread trading approval in your IRA account:

  1. Click Apply for Approval below
  2. Select your IRA from your account list
  3. Scroll down and click Apply for Options Approval (the green button)
  4. Select “Level 2” and then continue to fill out and submit the Options Trading Application form.

Apply for Approval

Talk to Us

To put these strategies to work in your portfolio:

  • Call Schwab anytime at 877-594-6324

  • Check out our library of options strategy articles on Schwab.com

  • Talk to a Financial Consultant at your local branch

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Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Please read the Options Disclosure Document titled "Characteristics and Risks of Standardized Options" before considering any option transaction. Supporting documentation for any claims or statistical information is available upon request. With long options, investors may lose 100% of funds invested. Spread trading must be done in a margin account. Multiple leg options strategies will involve multiple commissions. Commissions, taxes and transaction costs are not included in this discussion, but can affect final outcome and should be considered. Please contact a tax advisor for the tax implications involved in these strategies.

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