Does anyone have experience with IB's new IRA Margin account? Can you really trade the same funds repeately without the normal three day clearing?
Yes, really the IRA margin account just removes the 3 day clearing. It does not let you borrow as one might think from the word margin. Apparently the SEC prohibits that. I have that margin account and it clears every night. What I wish they'd add is: allow (partial) transfers from Traditional IRA to Roth IRA.
If you choose "margin" option, IB IRA accounts will let you trade without having to wait 3 days after the sale. If your account is less than $25k, IB's system prevents you place the 4th order (regardless of your intention of holding the new position overnight) to initiate a position if you have already done 3 round trip trades in rolling 5 days. IB is not the only firm that will not make you wait 3 days after the sale date before you can use the proceed of the sale to make a new purchase. For example, TradeKing says they also replenish buying power overnight in IRA-type accounts. Not forced to wait 3 days after the sale to purchase new securities is a good thing in IB's misnomer IRA margin accounts. However, I think you should also be aware of a few other things in IB's IRA. -IB does not do any type of conversion or recharacterization from Traditional to Roth or vice versa. They also appear to take a long time to close the account. -Though it violates the industry/SEC regulations to let the client buy more than the available cash worth of the IRA account, IB's current system knowingly (and illegally) may let you place and execute a (DAY) buy limit order that may be worth more than the available cash in your IRA. [Many other brokers' systems is robust enough to prevent a simple (DAY) buy limit order that can exceed your available cash.] -The "buying power" obtained from IB's system is often right---but sometimes does not seem to reflect the actual buying power (which is simply supposed to be the available cash to initiate new positions) in IRA.
Norm, There is another point you need to be aware of. Though IB does not apply PDT rules in cash accounts, IB will apply it in IRA-margin---even if this is really not a margin account. If your IRA is less than $25k and if somehow 4 total round-trip trades occur in 5 rolling business days, your account will be restricted for 90 days. Or, you can contribute (if it is allowed by IRS' yearly IRA contribution rules) to your account to make it $25k. After 90 days, you will be able to start using your account again.
I've been wading through McMillan's Options as a Strategic Investment, and on page 773 (in the chapter Strategy Considerations - Using the "Greeks") he said something interesting: "Refer back to the table of strategies at the beginning of this section. Notice that ratio writing or straddle selling (they are equivalent strategies) have the characteristics that have been described in detail: delta is 0, and several other factors are negative. It has been shown how those negative factors translate into potential profits or losses. Observing other lines in the same table, note that covered call writing and naked put selling (they are also equivalent, don't forget) have a description very similar to straddle selling: delta is positive, and the other factores are negative. This is a worse situation than selling naked straddles, for it entails all the same risks, but in addition will suffer losses on immediate downward moves by the underlying stock. The point to be made here is that if one felt that straddle selling is not a particularly attractive strategy after he had observed the above examples, he then should feel even less inclined to do covered writing, for it has all the same risk factors and isn't even delta neutral."