sell-to-open in an IRA account?

[loufah]

I accidentally sold (instead of bought) NFLX puts. I promptly bought them back, but I was surprised I was even allowed to write them at all. I had no position in NFLX stock. Was this an oversight by the broker, or is writing uncovered American-style equity options in an IRA allowed now?

 

[1245]

I accidentally sold (instead of bought) NFLX puts. I promptly bought them back, but I was surprised I was even allowed to write them at all. I had no position in NFLX stock. Was this an oversight by the broker, or is writing uncovered American-style equity options in an IRA allowed now?

Selling a naked put has a limited loss. You can sell naked puts. The margin is equal to the max loss. You can't short a stock or sell a naked call.

1245

 

[stevegee58]

Yup, selling puts is exactly the same risk profile as buying stock. It depends on the broker but at IB for example you can sell puts, put on options spreads, etc in an IRA as long as the account is approved for it.
Even then, selling calls is not allowed because it's theoretically unlimited risk.

 

[eurusdzn]

Maye it was a cash secured put that was allowed to be sold in your IRA.
Buying power may have been reduced by cash value of underlying.
You may not have noticed cause your not a 5k forex banger.

 

[Mitch89]

Selling a naked put has a limited loss. You can sell naked puts. The margin is equal to the max loss. You can't short a stock or sell a naked call.

1245

sorry for the question, how is it possible that writing naked put has limited loss?

 

[1245]

sorry for the question, how is it possible that writing naked put has limited loss?

If I sell the Puts on GE, last sale 25.11, I can only lose $25.11 minus the net credit from the sale of the put.

1245

 

[newwurldmn]

If I sell the Puts on GE, last sale 25.11, I can only lose $25.11 minus the net credit from the sale of the put.

1245

Strike price - premium is max loss.

 

[1245]

Strike price - premium is max loss.

My intent was to say the same thing.

 

[Mitch89]

If I sell the Puts on GE, last sale 25.11, I can only lose $25.11 minus the net credit from the sale of the put.

1245

Say the underlying is $90 and you sell put 85, now the asset plunged to $60 and after a day continued to $40 and to $20.
your put (as long as you have it) has unlimited loss, or am I wrong?

 

[1245]

Say the underlying is $90 and you sell put 85, now the asset plunged to $60 and after a day continued to $40 and to $20.
your put (as long as you have it) has unlimited loss, or am I wrong?

Sorry, but you are wrong. The 85 put can not be worth more than $85 at expirations. If you sell a naked call, there is no limit to how much you can lose. So, margin requirements are different in these types of accounts. You can't have a situation where you have a margin call in an IRA. Selling the put will remove enough buying power to cover max loss. You can't short the stock or naked calls, because potential losses are unlimited.