Vanguard Retirement Accounts - Level 2 Options Trading Only

[Mister Imperceptible]

I can only trade options Level 2 or lower in a Vanguard IRA. This allows me to buy call or put options in a low volatility environment (VIX back down around or below 15, but let’s see what happens after the Fed’s minutes are released at 2pm today).

Unfortunately, when volatility spikes and options become more expensive and susceptible to vega risk, I would not be able to run a debit spread in such an account.

I have been recommended TD Ameritrade, Charles Schwab, and Fidelity as viable alternatives. Tasty Works was also mentioned, but as I understand it, that is more for options only and stock purchases are in blocks of 100 shares to match an options strategy.

I would prefer an account that allows the flexibility to rebalance gains from winning options trades into my current version of a stable value fund, which is a medley of whatever the settlement fund is with short term treasuries and mining stocks.

What brokerage do you use?

[Gilberto de Piento]

I was briefly a customer of OptionsHouse but it looks like Etrade bought them.

[Mister Imperceptible]

Ah ok, some clarification. Even if setting up a debit or credit spread is a limited loss trade, the selling of an option requires margin in isolate. It is possible to bungle the trade and so they still need margin, and you cannot add funds willy nilly to a retirement account in case you screw up executing the spread. Although apparently you can still set up spreads in a Roth IRA but not in a pre-tax account. I have to figure out why. I hope this is informative but if I am wrong someone please correct me.

In any case, the Fed says clouds are on the horizon so of course the VIX goes down even further. As opposed to them saying the economy is robust and that balance sheet normalization and rate hikes are on autopilot, in which case the market tanks and the VIX spikes. I guess this is why they say the bond market is smarter than the stock market?

[Gilberto de Piento]

Maybe try r/wallstreetbets, those guys really know what they are talking about.

[Mister Imperceptible]

lol

[Bismarck]

This is slightly off topic but not sure where else to ask.

So here goes:

I'm trying to write cash secured puts to generate income on a broad market etf that I'm fine holding long term whenever I get assigned shares. I have about 5-10k to use for this so SPY is not an option. Similar etfs don't have significant volume, and bid/ask are often blank or don't appear to change.

In this situation, should I figure out some valuation model (American style black scholes?) and submit a limit order on something like SCHD or DVY, or wait and accumulate big boy capital to trade SPY?

I'm afraid to ask on Wallstreetbets. They will just tell me to drop the cash secured part and yolo some FDs haha

[Gilberto de Piento]

This is slightly off topic but not sure where else to ask.

Starting a new thread may get you some responses.

[Generation-X]

This is slightly off topic but not sure where else to ask.

So here goes:

I'm trying to write cash secured puts to generate income on a broad market etf that I'm fine holding long term whenever I get assigned shares. I have about 5-10k to use for this so SPY is not an option. Similar etfs don't have significant volume, and bid/ask are often blank or don't appear to change.

In this situation, should I figure out some valuation model (American style black scholes?) and submit a limit order on something like SCHD or DVY, or wait and accumulate big boy capital to trade SPY?

I'm afraid to ask on Wallstreetbets. They will just tell me to drop the cash secured part and yolo some FDs haha

Writing puts just means you'll pay later to own the shares. Not a good thing to do in a down market or before a potential down market.

In general, I would be a buyer and not a seller of options to limit risk because it's that tail risk that will ruin the writer in the end.

Keep trades small and only trade potential payout that is at least five fold or more.

IMO, it's much harder to gauge the market than say, a company that one is very familiar with.

If one is bullish on gold, any great gold companies to include in the portfolio? This is a way to lower the cost of purchasing the shares a bit and it may work a few times but eventually, you will be assigned.

One can do the same thing using covered calls to exit a position and to add to the return a bit a few times but eventually, you will get assigned as well.

[Mister Imperceptible]

IMO, it's much harder to gauge the market than say, a company that one is very familiar with.

If one is bullish on gold, any great gold companies to include in the portfolio? This is a way to lower the cost of purchasing the shares a bit and it may work a few times but eventually, you will be assigned.

Vanguard rejected my application to trade options so I transferred to TD Ameritrade. I got a call from TDA this morning at 9:30 informing me the funds have cleared, so of course when I log into ThinkOrSwim on my lunch break the VIX had bounced off of the 13 handle and over 16, only to calm back down into the 14s after I made some purchases (F&%K!). But what I believe to be a bear market rally has been so ferocious that I wanted to get invested before the Ides of March.

Fortunately I had sold some GDXJ when gold hit its technical barrier at $1350/oz to bank some gains, and used those gains to buy puts today. Mostly Jan 2020 puts and one Oct 2019 put on XBI, XRT, XLF and JNK. XBI puts were a personal employment hedge; XBI took a beating in the December 2018 sell off. The others were because the world is insolvent. I also bought some SPY Jul 2019 calls to hedge against a short term move against me. I’ve been looking at the market with a macro perspective. My positions are small enough, but I can see when one gets north of $500k in NW they want to trade binoculars for a microscope sometimes and get involved with individual securities. Purchases were less than 10% of SEP IRA and less than 1% of NW. Wasn’t going to overthink it.

I am not a geologist. Nor do I know if Columbian terrorists will hinder mine activity or if an intrusive South African government will start confiscating mines. The Van Eck funds GDX and GDXJ are the most liquid, so I would guess their options would trade with more liquidity. I own some SGDM outright in addition to GDXJ because I like Rick Rule[1] and they are less subject to the above mentioned geopolitical risks. GDX has large exposure to the majors like Barrick and Newmont that have massive debts. This is a pure speculative play so I prefer the mid tiers and juniors. The miners historically are mismanaged. GDX underperformed gold in 2007-2011. GDXJ outperformed. But now GDXJ is large enough that by law it cannot own more than a certain percentage of the juniors so it is more of a mid tier ETF now than a junior ETF. When I have more of a handle on options trading I will cut back on GDXJ ownership, increase cash, and supplement with GDXJ call options. I would hate to be right about gold and wrong about an individual miner stock at the same time.

[1] “Gold insulates you from the degradation of the collective.” You knew I was going to eat that shit up.

[Generation-X]

Options is nice when it goes your way but often times it does not. People lose a lot of money in options precisely because they trade too often.

The loss is immediate when options are purchased until proven otherwise. As with anything else, preparation and doing the homework go a long way to provide edge over those who just trade options without even looking at company fundamentals.

Buying a lottery ticket once in a while is probably trivial but done often and it will be detrimental to one's finances. With that said, welcome and good luck!