Is it possible to use IB for long-term options trading in a Roth IRA?

Discussion in 'Retail Brokers' started by BinaryMan, Jul 9, 2008.

  1. I know that IB can grant Level I options trading privaledges on a Roth IRA account, but my research indicates that some brokers offer Level II options trading as well. I would like the capacity to buy both puts and calls for intermediate term trades, particularly since these accounts do not allow margin for short trades (I have no intention of shorting stocks or options, but I would still like to be able to benefit from movement in either direction by buying options).

    Does anyone do Level 2 options trading in a IRA/Roth IRA account and can tell me what (if any) restrictions exist? Can I use IB as my broker (which I would prefer) and still have access to Level 2 options trading on my Roth IRA?

  2. Don't know about Roth, but my rollover IRA is a margin type and you can do option spreads, futures, etc.

    Basically just no naked calls. But you can do vertical spreads, calendar spreads, butterflies, etc.
  3. OK. I also wanted to verify whether or not they would lock additional funds beyond the option premiums because their IRA FAQ says:

    "... buying calls (funds equal to the aggregate exercise value of the long calls are restricted), and buying puts (shares subject to exercise are restricted)..."

    Does this mean I need more than the option premiums to support an options trade for this account type? What is your experience?

    Because I would expect sometimes to hold these options for 1-2 months or possibly longer, I wanted to confirm the expected monthly fees:

    "IB caters to professional traders and investors and requires its customers to spend a monthly activity fee minimum which may include commissions, market data fees, special connection minimums and other fees. Those customers spending less than the activity fee minimums (as stated below) in any given month will be charged the difference between the minimum and the amount spent in a month."

    Which of these is true (assuming no trading activity in a month):
    (1) I get charged $10/mo for data fees and $10/mo for activity fees.
    (2) I get charged $10/mo for data fees but this counts toward the activity fee as suggested by the bold section in the above paragraph. It says that the fee minimum "may include ... market data fees"; this may not be what they intended to mean.

    This won't stop me from opening my Roth IRA account with them, but I would like to be as informed as possible about their policies.
  4. When I was looking at it, Think or Swim offered me more robust options trading possibilities. Don't know if that's changed or not, it's been over a year since I was looking at it, but it might be worth a look.
  5. I know which page on the IB web site you're referring to Binary. It *looks* like you can't do squat in an IRA except buy stock and long options. But I think that only applies to cash-style IRAs. And you apparently can only do option spreads with European-style options (yuck). Again this just isn't true for a margin-type IRA.

    IB really gave me the run-around answering this question for me a few months back. They swore up and down I couldn't trade butterflies or calendars. Then I met a guy in my local trading club who said he was trading pretty much anything he wanted in an IB IRA. So last month I put on a dirt-cheap butterfly on QQQQ (American style) for like $6 (LOL plus like 3.40 commish) to find out. The order was filled just fine and I even made $20 on the trade. Not bad for a science experiment.
  6. I think the business about aggregate exercise value means you can't borrow against it to open more positions. That makes sense for an IRA. Even though you can have a margin style IRA, it's restricted. In a normal margin account (not tax deferred) you can open more positions by borrowing against the value of open positions.
    My experience with the $10 data fee is you need to have at least $30 in commission per month and it's for basic price and volume data. If you fall below that, you get hit with the $10 fee. If you're swing trading or doing option spreads, this isn't a problem you'd experience. There are some premium data fees for things like Level 1, ARCABook, etc. Maybe those fees count toward that $30 minimum.
  7. I also looked at TOS and it looked that way to me also, on paper. Turns out IB IRAs can do most anything just like TOS. TOS has *such* a nice platform, though, but that's a separate subject.