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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: SnowShredder who wrote (1766)	1/2/2000 10:59:00 AM
From: Dan Duchardt	Respond to of 2241

Are there any time restrictions on the length of holding an equity long call/put in an IRA? In other words, can one daytrade an equity long call/put in a IRA? I believe there is no legal obligation for you to hold an equity position for any length of time, so you should be allowed to sell your long call/put on the day you purchase it. However, I know of at least one major broker (Merrill Lynch), and I expect there are others that prohibit same day purchase and sales in an IRA, for stocks as well as options. It's a matter of accounting. The broker won't allow you to sell something they don't know you own (no shorts allowed in an IRA). If the broker waits until the end of the day to tally up your positions, then they don't know until the following day what you have in the account. This little restriction recently cost me big time. I had a stock up 15% one hour after I bought it. The next day it was still up a little, but I believed it would return to the high, so I held on. Then I was away for the holidays, etc. As of Thursday I was down 33%, but on Friday it came up some. I still believe it will recover, but of course in the meantime my money is tied up. Brokers who impose this restriction are being overly conservative, but they can argue with some justification they are protecting your account. If you do find a broker who will not restrict you from selling the same day you buy, you may be on your own to keep track of your daily purchasing power. You may NOT daytrade in the sense of buying and selling over and over during the same day. You are limited to spending your IRA money ONCE each day. Any cash (including money market) you have at the beginning of the day, and any new cash raised by selling an equity that you held at the beginning of the day, may be used ONCE to purchase equities. If you sell something the same day you purchased it you cannot use the proceeds of the sale to purchase something else, or the same equity again. I have heard that some of the online brokers administer all their accounts the same way, and that for some technical reason I don't recall the online brokers are not subject to the same margin rules as the direct access brokers. However, margin rules do not apply to an IRA (no margin use allowed). Such a broker would not keep you from spending cash every time it appears in your account, so you could easily jeopardize your IRA, and have to pay a bundle in taxes and penalties if the IRS ever catches up to you. Dan