Originally Posted by
Jiggawatt
Marcal, Misspoken, Seneca—interesting discussion on the risks of options. But couldn’t someone argue the exact opposite—that it’s better to start learning in a retirement account?
In an IRA, the brokerage literally won’t allow you to make high risk trades such as naked calls/puts. This guards you from getting into trouble. In a non-retirement account, I could make a mistake while putting in an order, or just think that selling this put on Amazon is really going to pay off because my buddy said so, and then the market moves against me and I get a margin call... this is simply not possible within an IRA.
Either way, I agree that a new trader needs to start slow and limit risk. It just seems like using some IRA capital to learn options is a way to force that limited risk on a newbie.
My problem with risk taking and trading options and futures isn't necessarily with the products. It is the leverage. With stocks and covered calls you have at most 4/1 leverage. With futures it is 50/1 and options are similar. You can trade any of these products in a self directed IRA and that is ok. Just keep in mind I know a man who killed his IRA, savings, and lost his marriage because he kept buying lower on a stock that he thought was safe. Ever heard of Enron? He literally averaged down to the dirt because he couldn't take a small loss. Discipline is the key to wealth. It is the key to wealth no matter what field or endeavor. If I had the choice between intelligence and discipline I would go discipline every time.
Take all the risk you are comfortable with, just make sure you have proven the ability to take a loss and move on. As long as you still have the risk tolerance to average down and wait for a scratch out or small winner to exit your account will be at risk. I am scared by some of the talk in this thread about rolling out options to wait for a profitable exit. That is what killed Karen the "super trader". I put up a video of Ken Cordier. Watch it, he ruined his clients because of his hubris and unwillingness to take a loss and move on.
Trading is not kids play. You can destroy yourself if you aren't built for it. I am just trying to make sure everyone understands that.