How to Trade Options With Your IRA Account

Trading options in your individual retirement account would allow you to book those trading profits without having to pay taxes every year on the gains. The trade-off from using your IRA money to trade options is the limitation on which options strategies can be used with IRA accounts. Your IRA may provide the necessary funds to start trading options for the first time.

Options Authorized Account

To trade options in your IRA brokerage account, you must obtain authorization from the brokerage firm. Request and complete the options authorization application and disclosures. The broker will add the options trading authorization to your account after reviewing your paperwork. You will be assigned a trading authorization level that determines the types of options strategies you can use. IRA accounts can be given either level 1, 2 or 3 trade authorization. The higher the level, the riskier the options strategies you can use in your IRA.

Authorized Strategies

Since the IRA rules do not allow margin trading, the types of options strategies allowed in an IRA are limited to those that do not require margin coverage. The level 1 options strategy is covered call trading. The main level 2 strategies are buying call or put options and cash secured puts -- an equivalent strategy to covered call writing. Level 3 authorization allows options spread strategies with defined risk profiles. Each broker sets its own limits on which options strategies are allowed in an IRA account. Check with your broker to see which strategies will be approved for your account.

Making Trades

Options are traded using your online account and dedicated options trading screens. The different options strategies will have strategy specific screens so all sides of a strategy can be entered with a single trade order. Find the current prices through the options chain link included with the share price when you look up a stock quote. Some brokers -- especially brokers who specialize in options trading -- provide practice trading accounts with which you can learn how to use the trading screens and try different strategies without risking your IRA money.

IRA Options Considerations

The covered call options strategy is the lowest risk strategy and a good starting point if you have never traded options. If you incur losses in your IRA, those losses cannot be used as tax deductions. Stick with options strategies with a high probability of producing profitable trades. The Chicago Board Options Exchange -- CBOE -- and the Options Industry Council -- OIC -- provide free, online options trading courses and detailed information about the different options trading strategies.

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