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Strategies for IRASelling Puts in your IRA | Sep 21, 2016
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    Strategies for IRASelling Puts in your IRASep 21, 2016

    We think it’s silly, but there are serious restrictions when a trader wants to selling premium in an IRA account. It’s totally prohibited to sell a naked Call in an IRA account and a short Put must be cash-secured which means the margin for the short Put has to cover the unlikely possibility that the underlying goes to zero. That’s a huge hit to Buying Power.

    A solution to this problem is to purchase a further out-of-the-money (OTM) Put or Call, one with a 5 Delta. That makes it possible to short the Call and cuts the Buying Power Reduction (BPR) for the short Puts by as much as tenfold. The tradeoff is that P/L results will not be as good.

    Three different tables were displayed. The first showed how adding a 5 Delta Put made only a slight difference in the average credit received. Doing so though lessened the BPR enabling more trades and a larger number of occurrences. The other two tables displayed the results of adding a long 5 Delta Put to a short at-the-money Put managed at 50% of max profit (if possible) or a short 30 Delta Put also managed at 50% (if possible). The tables included the success rate, median P/L and largest loss. The table showed that adding the cheap OTM wings only reduced the success rate and median P/L minimally.

    For more information on the concepts discussed here see:

    Watch this segment of Strategies For Your IRA with Tom Sosnoff and Tony Battista for theimportant takeaways and the detailed results of our study of adding long 5 Delta Puts to our naked Puts to reduce the hit to Buying Power in an IRA account.

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