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

To: Dan Duchardt who wrote (2112)	6/19/2001 7:14:33 PM
From: LKO	Respond to of 2241

The purchase of the shares for which you did not have the cash would be allowed in an ordinary cash account, but would generate a demand for you to deliver cash to cover the purchase price. Under Reg T, the proceeds from the sale can never be used to cover the purchase of a security. Since, as you say, one cannot deliver unlimited cash to an IRA account, you are in violation of IRA rules Thanks for clarifying this subtle point. I am thankful for "them" allowing a few mistakes and the system of "warning" did make me sit up and take notice and investigate "what did I do here". My hope is that usual "educational literature" can be improved to point out these traps that newbies like me can easily fall into. I have a broker who allows long calls in my IRA, but only if there is enough cash to cover the exercise price. That takes away all the leverage, but at least I still have the downside protection of buying calls instead of stock. That paid off during last year's Nasdaq crash. That is draconian. Using leverage with a cap on money lost (such as in 90/10 strategy) is what motivates me. Perhaps brokers can require a "buy-at-close" on expiry order in this case that can be overriden by "cancel and replace" mechanism to do something else that one may decide to do before expiry. Or maybe I am thinking too complicated. However, even more so than in regular accounts, in IRA accounts one should never forget that "option trading" is a two-transaction affair and one does not have the luxury of "buy and forget" such as with stocks.