Why won't my retirement account let me write a “covered put”?
You're correct in your implied point: Selling a cash secured put has less risk (in terms of both volatility and maximum loss) than buying the security outright. However, many brokerages don't allow cash-secured put writing in IRA accounts.   There are three reasons this tends to be the case: A broker does not have to allow the full trading suite the regulations permit.  From brokersXpress: Do you allow equity and index options trading in brokersXpress IRAs?     Yes, we allow trading of equity and index options in IRAs based on the trading level assigned to an investor. Trading in IRAs includes call buying, put buying, cash-secured put writing, spreads, and covered calls.  I understand OptionsXpress.com offers the same level of trading. Disclosure - I have a Schwab account and am limited in what's permitted just as your broker does. The trade you want is no more risky that a limit (buy) order, only someone is paying you to extend that order for a fixed time. The real answer is to ask the broker. If you really want that level of trading, you might want to change to one that permits it. "I have a Roth IRA with Scottrade, and they allow me to write cash secured puts, as well as covered calls. I can also purchase calls or puts, if I choose. When I write a cash secured put, it automatically deducts the amount required to purchase the shares at the strike price from my ""cash available for transactions""." "A ""covered put"" of the form of being short, and buying at the strike price if the ""put ... is put"" (excercise), is off the table simply because you can't do shorts in the retirement account. Even if you feel you ""win"" the argument that you're hedged by being short, any broker can say, ""we simply forbid shorts"" and that's that. A ""covered put"" of the form of posting the cash, and spending it to buy at the strike price if the ""put ... is put"" (excercise), might be forbidden by brokerages because, frankly, how do you account for the ""dedicated"" cash? Is it locked down like margin is, or escrow, or what? I don't know offhand how I would address that in my very own firm. Thus, any broker could say, ""we forbid it"" and that's that. The other answers are very interesting in conjunction with this. JoeTaxpayer says, very paraphrased, 'just cuz it's legal doesn't mean we have to offer it.' Jaydles says (again, completely paraphrasing), 'complex stuff for a safe little retirement savings account;' 'difficult to administer' (as I said, how do you account for it); and 'tradition' So maybe look at Scott, per Thorn's answer, LOL. It appears that you can shop around on this issue."
"You need a brokerage account to invest in ETFs (there are many different kinds of ETFs, not just one) and that usually means having some amount already deposited with them into the ""cash account"" in your name. Once the brokerage account is established, you can send whatever money from each paycheck to the brokerage and tell them to invest it in the ETF of your choice. There are no restrictions as to how much money you can send if you send them a check. If you want the money to be withheld from your paycheck, then of course, the limit is the amount of the take-home pay, and whether your employer offers such a service will affect the issue. If you are wanting to invest in ETFs through your employer's 401(k) plan (or 403(b) plan), there are lots of other considerations." I think George's answer explains fairly well why the brokerages don't allow this - it's not an exchange rule, it's just that the brokerage has to have the shares to lend, and normally those shares come from people's margin, which is impossible on a non-marginable stock. To address the question of what the alternatives are, on popular stocks like SIRI, a deep In-The-Money put is a fairly accurate emulation of an actual short interest.  If you look at the options on SIRI you will see that a $3 (or higher) put has a delta of -$1, which is the same delta as an actual short share. You also don't have to worry about problems like margin calls when buying options.  The only thing you have to worry about is the expiration date, which isn't generally a major issue if you're buying in-the-money options... unless you're very wrong about the direction of the stock, in which case you could lose everything, but that's always a risk with penny stocks no matter how you trade them. At least with a put option, the maximum amount you can lose is whatever you spent on the contract.  With a short sale, a bull rush on the stock could potentially wipe out your entire margin.  That's why, when betting on downward motion in a microcap or penny stock, I actually prefer to use options.  Just be aware that option contracts can generally only move in increments of $0.05, and that your brokerage will probably impose a bid-ask spread of up to $0.10, so the share price has to move down at least 10 cents (or 10% on a roughly $1 stock like SIRI) for you to just break even; definitely don't attempt to use this as a day-trading tool and go for longer expirations if you can. Simply put, that's not allowed.   Outside a retirement fund, they simply do not provide a mechanism to pay that expense ratio separately.  Ergo, any effort to pay that expense ratio would be classified as a new/additional purchase of the fund. You now must deal with  Inside a retirement fund, paying the expense ratio of the fund with cash would be treated as an additional contribution, which may then violate contribution rules (such as going over your contribution limit, or contributing past age 70-1/2). "This doesn't make sense to me. Writing a covered call gives him a long delta position - the exact opposite of what he wants. And the tax losses won't turn a losing position into a winning one.  Is there something I'm missing?  Edit: Also, doesn't ""shorting against the box"" mean he has to have a long position, and short against that? That means you've got zero net delta, which isn't very useful at all..." "Is option trading permitted in the account? Most 401(k) do not permit this. 1 - it means none traded today. 2 - there are 50 outstanding contracts. Each one has a guy who is long and a guy who is short.  3 - not really, it might depend on the stock.  4 - no. With commissions so low, and the inherent leverage of options, one contract reflecting 100 shares of the underlying stock, the minimum is what you can sleep soundly with.  5 - because GLD does not reflect precisely 1/10 oz of gold's price. If you look at the prospectus, it reads ""The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust’s expenses."" Since there are no dividends to take expenses from, the GLD price will erode by .4% each year compared to the price of 1/10oz gold." You should also consider what the cost of the Put is, especially if the strike price is set at the current price, vs the average price delta of the security during the period between when you buy the put, and the expiration date.  Also note the prices for puts on stocks with a lot of price volatility. There are a good number of situations where you may come out behind. If the stock stays the same price, you are out the premium you paid for the put. If the stock price rises less than the premium, you are out the difference between the two. If the stock price falls less than the premium, you are out the difference between the two. In order to be 'in the money' when writing a protective put, the stock has to either rise more than the premium you paid for the put (and you MUST sell, or hold and write off the expense of the put) or the stock price has to fall below the strike price to a level lower  than the premium you paid, and you must SELL via the exercising the option. and you've protected yourself from a loss (presuming you were going to sell and not hold and see if the stock recovers.  And since selling is required in both cases, if you've held the stock less than a year, then pay on any profits at short term rates (taxed as regular income) and if the price went down, you can't claim any loss (unless strike price was below your buy price), and would still need to pay if you had a net gain, and you likely can't deduct the price you paid for the put. You sold a call, I trust? I bought a call. I have the right to exercise at my will. No sense if out of the money, of course, but if in the money, I might want to capture a dividend or just start the clock for long term gains. Once I exercise, you have no option (pun intended) but to let it go.  The assignment is notification, not a request for permission. From my own personal experience, you cannot trade spreads in RRSP or TFSA accounts in Canada. You can only buy options (buy a call or buy a put) or you can sell calls against your stock (covered call selling). You will not be able to sell naked options, or trade any type of spread or combo (calendars, condors, etc). I am not sure why these are the rules, but they are at least where I trade those accounts. I am not a lawyer but I do not see a legal problem here. However, if the puts in the Roth IRA are not purchased at fair market value that could be a problem. For example, if your traditional IRA sold puts to the Roth IRA below fair market value that would not be allowed. However, from your post, it appears that you will be buying the puts from a third party so that will not be an issue. There is something else that just cross my mind. Imagine that you own 100 shares of the XYZ stock in your traditional IRA and 100 shares of the XYZ stock outside of an IRA. Now, you buy a put on the XYZ stock inside your Roth IRA. Are the dividends on the XYZ stock still qualified? I do not know but my guess is the answer is no. Nobody here really answered your question.  The custodian of the 401k determines what funds and investment options are available within that 401k.  So if they're eliminating company stock as an option then they can absolutely make you sell out of it.    You may be able to do an in service rollover and transfer your funds to an individual ira but that's not particularly common among 401k administrators.   Aside from that I'd ask why do you want to hold company stock anyway?  Generally I'd advise against this as its imposing a ton of risk on your financial future.  If your company tanks you're out of a job, which sucks.  But it sucks even more if your company tanks and your 401k loses a ton of value at the same time.   Edit: I see you asked who benefits as well.  It may just be a situation of no benefit at all.  Perhaps the plan didn't have enough people investing in company stock to make the option cost effective.  Maybe the administrator decided that allowing people to take on that amount of risk was not in their best interest(it's not).  Could be a ton of reasons but it's unlikely the company did so out of greed.  There isn't a lot of financial benefit for them there. I had a situation like this also. A client deposited an IRA check to his local P.O. prior to collection p/up, thinking this meant it would be postmarked April 15. It may have been picked up, but wasn't postmarked until the next day, and my firm refused to consider it as timely. I do remember discussing it w/my Retirement Services Dept. Maybe they made an exception for me and my client, but maybe not. I don't remember. Good luck. Question: My job that I've been with for 2 1/2 yrs offers a 401k, but doesn't match. I have an account, but it's still sitting with my old employer. The fact that my new job doesn't match and how I've heard so many mixed things about 401k has lead me to not signing up. I'm 40; I need to be doing something to save for retirement. Any advice would be appreciated. Should I invest in 401 anyway or put the money I was going to put in there someplace else? If someplace else, where? Also who would I talk to about money someplace else. I, admittedly, am really bad about all of this stuff, but need to change. My wife and I make 100k combined and should be getting things more together for our future. She has a 401k going, but that's about all we have. Thanks again "Cart's answer describes well one aspects of puts: protective puts; which means using puts as insurance against a decline in the price of shares that you own.  That's a popular use of puts.  But I think the wording of your question is angling for another strategy: Writing puts. Consider: Cart's strategy refers to the buyer of a put.  But, on the transaction's other side is a seller of the put – and ultimately somebody created or wrote that put contract in the first place!  That first seller of the put – that is, the seller that isn't just selling one they themselves bought – is the put writer. When you write a put, you are taking on the obligation to buy the other side's stock at the put exercise price if the stock price falls below that exercise price by the expiry date.  For taking on the obligation, you receive a premium, like how an insurance company charges a premium to insure against a loss. Example:  Imagine ABC Co. stock is trading at $25.00.  You write a put contract agreeing to buy 100 shares of ABC at $20.00 per share (the exercise price) by a given expiration date.  Say you receive $2.00/share premium from the put buyer.  You now have the obligation to purchase the shares from the put buyer in the event they are below $20.00 per share when the option expires – or, technically any time before then, if the buyer chooses to exercise the option early. Assuming no early assignment, one of two things will happen at the option expiration date: ABC trades at or above $20.00 per share. In this case, the put option will expire worthless in the hands of the put buyer.  You will have pocketed the $200 and be absolved from your obligation.  This case, where ABC trades above the exercise price, is the maximum profit potential. ABC trades below $20.00 per share.  In this case, the put option will be assigned and you'll need to fork over $2000 to the put buyer in exchange for his 100 ABC shares.  If those shares are worth less than $18.00 in the market, then you've suffered a loss to the extent they are below that price (times 100), because remember – you pocketed $200 premium in the first place.  If the shares are between $18.00 to $20.00, you're still profitable, but not to the full extent of the premium received. You can see that by having written a put it's possible to acquire ABC stock at a price lower than the market price – because you received some premium in the process of writing your put.  If you don't ""succeed"" in acquiring shares on your first write (because the shares didn't get below the exercise price), you can continue to write puts and collect premium until you do get assigned. I have read the book ""Money for Nothing (And Your Stocks for FREE!)"" by Canadian author Derek Foster.  Despite the flashy title, the book essentially describes Derek's strategy for writing puts against dividend-paying value stocks he would love to own.  Derek picks quality companies that pay a dividend, and uses put writing to get in at lower-than-market prices.  Four Pillars reviewed the book and interviewed Derek Foster: Money for Nothing: Book Review and Interview with Derek Foster. Writing puts entails risk.  If the stock price drops to zero then you'll end up paying the put exercise price to acquire worthless shares!  So your down-side can easily be multiples of the premium collected.  Don't do this until and unless you understand exactly how this works.  It's advanced. Note also that your broker isn't likely to permit you to write puts without having sufficient cash or margin in your account to cover the case where you are forced to buy the stock.  You're better off having cash to secure your put buys, otherwise you may be forced into leverage (borrowing) when assigned.  Additional Resources: The Montreal Exchange options guide (PDF) that Cart already linked to is an excellent free resource for learning about options.  Refer to page 39, ""Writing secured put options"", for the strategy above. Other major options exchanges and organizations also provide high-quality free learning material:" ... can someone explain to me why vanguard of all companies would be asking for this? If they're a company based on broad index funds, then whether or not exxon or Chevron or whoever else has climate change risk is irrelevant to that model, right? My two-cents, read your plan document or Summary Plan Description. The availability of in-service withdrawals will vary by document. Moreover, many plans, especially those compliant with 404(c) of ERISA will allow for individual brokerage accounts. This is common for smaller plans. If so, you can request to direct your own investments in your own account. You will likely have to pay any associated fees. Resources: work as actuary at a TPA firm