by Dawn Pennington 05/07/08
Q: I'm drawn to options to supplement my buy-and-hold strategy. Should I stick to covered calls? I'd really like to dabble in my Roth IRA to avoid short-term capital gains taxes with an online broker, too.
A: Individual Retirement Accounts are not allowed to be margin accounts, which means you can't borrow your broker's money against the funds because the creditor has no way of collecting. This also leads to covered calls as the only (in most cases) option investment that most brokers will let you make because the shares serve as collateral for the short option position.
If you want to make covered calls, which involves selling call options against a log stock position, then any discount or online brokerage should be able to accommodate you as well because you have the stock to guarantee the short call position. If you want to do something other than this, you may need a full-service brokerage firm.
The amount of leverage you get from options allows you to make substantial gains if your positions are correct. You can open a standard account with a small amount of capital to see how you like it.
Today we'll talk about why you may be feeling a sense of déjá vu if you come across an option you might have seen -- or even traded -- before.
Market-Makers Can Make or Break Options Trades
Market-makers can change the entire trading landscape in a single session. Let us explain how these mega-investors impact your portfolio.
Not All Call Buying is Bullish
If you would like a conservative strategy that lets you collect premiums, listen as we explain how a bear-call spread works.
Synthetic Call Options Similar to Real Deal
Create synthetic options to stimulate a long stock position or a combination of stock and call options to replicate the returns of both long and short put options.
Horizontal spreads are a great option tool when you believe you know the direction a stock will move, but it's not clear exactly when.