New Techniques  |  MAR 2007

Trading In Your IRA by John Ehlers

Stocks & Commodities V. 25:3 (22-24): Trading In Your IRA by John Ehlers This concept lets you trade your IRA with performance that can beat the index dramatically. Trading in your individual retirement account (IRA) usually means selecting which mutual fund to buy. The performance of these mutual funds is gauged relative to the Standard & Poor’s 500 or similar index. In this article I will describe some concepts that will allow you to trade your IRA with index-beating performance — sometimes dramatically. Most IRAs do not allow trading on the short side. Selling short is just the flipside of buying a long position. When you buy a long position, your strategy is to hold for a period and then sell back at a higher price for a profit. Similarly, you expect prices to decline if you sell short. In this case your strategy is to sell short now, hold for a period of time, and buy back at a lower price. BUYING OPTIONS Although you (usually) cannot sell short in your IRA, you can buy options to create synthetic positions. You want to use in-the-money options for these synthetic positions. You buy call options for synthetic long positions and you buy put options for synthetic short positions. Therefore, you are always buying something to establish your position in either direction. This is the fundamental concept of trading in your IRA. Simple and elegant, isn’t it?

by John F. Ehlers