#2 Derivative Positions

The IRS is clear when it comes to this, as it directly prohibits all the assets or funds that are in an IRA account from being used as security when taking out a loan. Thus, if you have been thinking of doing any type of derivative trade that could have an undefined or unlimited risk (for example, ratio spreads or naked call writing), you will not be able to use anything in your IRA as all these transactions are considered prohibited!

There are also issues when it comes to general derivative trading inside the accounts as well, as many custodians of IRA accounts will prohibit these types of trading with the exception of covered call writing. The reason behind all of these prohibitions is that since IRA accounts are made to be able to provide retirement income security, any type of speculative instrument that would put in jeopardy your assets, which includes derivatives, will be disallowed in order to protect the assets.

If you are looking to be able to trade options contracts or trades inside your IRA, you should be looking into having a custodian that will permit such types of transactions since there are some that allow alternative investments. which include old gas and oil leases or even hedge funds. Despite this option, we mention that most custodians that come from major banks, known brokerages, and even insurance-sponsored IRAs will not be permitting these types of derivative positions when it comes to the assets for which they are responsible under your IRA.