Leverage is the lure, but beware the hazards. It's rough out there. But new strategies are helping many daytraders stay afloat. Anecdotal evidence suggests daytrading may be coming back, in a slightly different form. If you can't beat the market, join it, writes the author of a recent book. Options can give you a hedge in volatile markets. Or they can boost your returns. While good markets come and go in the course of an IRA lifetime, the chance to boost returns on retirement money is something no experienced options investor should pass up lightly. The operating word here is experienced. Investors who are new to options should study the excellent educational materials at the Chicago Board Options Exchange Web site before giving any form of options trading a try. TSC's new book, TheStreet. If you are options savvy, there are several things to ask your broker ira you want to trade in an IRA. The options question is whether the broker offers options trading at all. As recently as this past summer, Datek didn't. Second is whether the broker offers IRA accounts. Stockan online broker that caters to options traders, doesn't. Third, if your broker allows options trading in IRAs, exactly what trades are permitted? At Morgan Stanley Dean Witter Onlinefor example, you can only write covered calls. You can't purchase puts. Those brokers that do offer options trading in IRA accounts commonly segment the specific trades they allow options levels or ira. Writing covered calls, considered the least risky options play, is usually the first tier. Buying puts and calls might make up the second tier, and selling what's known as a cash-secured put makes up the third. Finally, because of the risks involved, brokers might permit options trading in IRAs only for preferred or veteran customers. If you feel you can make a good case for yourself, by all means argue the point with your broker. The Risk Factor Regardless trading your experience level, be wary of the special risks of trading options within an IRA. The CBOE has a working paper that discusses these issues and goes over the trading strategies that I'll be talking about here in more detail. If ira mess up, you risk having your IRA disqualified by the IRS and paying a painful penalty as a result. Seek competent tax advice before launching into any form of options trading within an IRA. IRA Options Strategies Covered Calls Covered calls are one of the more popular IRA options tactics. When you write a covered call, you first purchase shares of a stock. Then you sell the technical term is write a call option on those shares. When you sell the option, you receive a premium from the buyer. In exchange for that premium, the buyer acquires the right to purchase your shares at the agreed-upon price, called the strike price. With covered call writing, you get the benefit of holding the common stock while enjoying downside protection equal to the amount of premium you took in. You stand to lose money if the stock declines by an amount greater than trading premium. Skilled options traders know when to exit from this sort of losing position. They may simply buy back the option and sell the stock. Because the stock has declined in price, the call option can generally be bought back for less than the price it sold for. These strategies, called rolling down or rolling out, can help minimize losses. That's because the call premiums you receive partially offset the money you've lost in the stock. Options with expiration dates that are farther in the future pay higher premiums. Same goes for call options with lower strike prices. But if the stock continues to decline, it can lock you into a loss. If you see that occurring, it's usually best to quickly exit both the stock and the call position. If you decide to write covered calls within your IRA, make sure your broker allows you to buy back that call to close the position. Otherwise you could be forced to hold a losing position until the call expires. While it seems that most brokers, including AmeritradeScottrade and PreferredTrade. So it's something you want to double check. Long Puts as Insurance Some brokers that allow covered calls may also allow you to purchase what are called protective puts. Covered call writers may use protective puts to hedge their positions. Or they may sell covered calls as a way to pay for the protective puts they buy. A protective put is really just a standard put option you buy specifically as a hedge against a stock you own but ira rather not sell. A put option gives you the right to sell a stock at a specified price by a set date. When the underlying stock declines in value, the put increases in value. When you buy a protective put, you're hoping that any gain in the put's price will offset losses in the stock. However, if the stock surprises you and increases in value, your put option will decline in value. It might even expire worthless unless you sell it beforehand. But, in this case, the losses will be made up for by gains in the stock. In essence, protective puts act options car insurance. If you don't get into a wreck, the insurance expires worthless. But if you do, it can more than pay for itself. You can also use protective puts as a hedge against mutual funds. Investors do this by purchasing puts on trading exchange-traded funds. For example, if you own a biotech fund, you can purchase put options on an ETF called the Merrill Lynch Biotech HOLDR BBH. The HOLDR contains a basket of leading firms in its sector. When you own BBH trading, if your regular biotech mutual fund declines, in all likelihood, the puts will simultaneously increase in value, and vice versa. You can't write options on all ETFs at present, but the list of optionable ETFs is growing. At the Nasdaq's ETF Web page, if you click options any of the ETFs listed there it says whether they are optionable. Also, each Saturday, TSC publishes the ETFs and HOLDRs Weekly Report. Here's the most recent. Be sure to read options primer on ETFs. Cash-Secured Puts Another strategy that can be even more useful is what's called the cash-secured put. If you're using cash-secured puts to generate income, you're betting that the underlying stock will increase in value and the put will expire worthless, so you get to keep the premium. In this case, you can sell a cash-secured put with a strike price near where you think the stock ought to be trading. If the stock retraces back to that price, the put will be exercised. You get the stock at what you believe is the correct price. And you also get the premium from the put you sold. If, however, the stock doesn't come back down by the put's expiration, you can still elect to purchase the shares, in which case the premium will likewise lower ira cost basis. It's a little like buying cereal with a dollar-off coupon. If the put is exercised, a few investors then go on to sell a covered call against the stock they've been assigned. This move lowers their cost basis in the shares even further, while generating additional income. The latter brokerage has chosen to specialize in options trading within an IRA. Safer Bets Some might argue that you don't need to use options to hedge your IRA, because you can enter and exit stock positions without worrying about capital gains taxes. The aggressive nature of options trading can lose you plenty, they'll tell you. But long options become totally worthless once they expire. The same can be said of some dot-coms too, but that's another story. With that in mind, here's a conservative approach to options trading in an IRA. 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Finally, you will receive bonus points depending on how quickly you finish a level, as indicated by your air gauge in the lower-left corner of the screen.
Finally, you will receive bonus points depending on how quickly you finish a level, as indicated by your air gauge in the lower-left corner of the screen.
Only this way is the entire posterior distribution of the parameter(s) used.
Photos: Back to school, 2 weeks early, for 1 Syracuse middle school.