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Managing a Family Fund

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Neilson173
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Managing a Family Fund  Reply with quote  

So I have spent the last 6-7 years honing my Option investment skills and am having some success trading Deep-ITM covered calls. I have some family members that want to get involved with some of their IRA money, but I'm not sure what the best arrangement/vehicle would be for me to be able to collect a portion of the returns for my trouble. Would I need to start some kind of LLC fund or holding company? Who would be the best person to seek for advice on this? Thanks.
Post Tue May 23, 2017 5:28 pm
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carlkooper007@gmail.com
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Post Tue May 23, 2017 8:44 pm
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oldguy
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There are quite a few limitations on option trading inside an IRA. I don't know if writing covered calls is allowed or not, it is backed by cash so maybe? And I don't know if deep-in-the-money is specifically defined by the Qualified Plans - IRA, 401, 404, etc? Those of us who trade them have our personal definitions, but that probably isn't acceptable?

quote:
IRAs cannot be enabled for margin trading, which prevents you from using certain options strategies. For example, if you sell short puts, they must be completely cash-secured. Otherwise this strategy is not permitted in an IRA. Short put positions have a limited profit potential with a substantial amount of risk.

You also cannot sell short calls ("naked" calls) in an IRA. A short call also offers a limited profit potential but can result in unlimited losses. Other advanced strategies that are off-limits because they involve margin include call front spreads, short combos, or VIX calendar spreads.IRAs cannot be enabled for margin trading, which prevents you from using certain options strategies. For example, if you sell short puts, they must be completely cash-secured. Otherwise this strategy is not permitted in an IRA. Short put positions have a limited profit potential with a substantial amount of risk.

You also cannot sell short calls ("naked" calls) in an IRA. A short call also offers a limited profit potential but can result in unlimited losses. Other advanced strategies that are off-limits because they involve margin include call front spreads, short combos, or VIX calendar spreads.

Post Tue May 23, 2017 10:39 pm
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Neilson173
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I've actually helped to direct a family member through executing this trading strategy from within one of their existing Schwab IRA accounts with no issues. They make you submit an application for certain option strategies, with any "covered" strategies falling in the "level 1" category.

The dilemma pertains to whether one could start a fund by way of LLC or something else, in order to invest a family member's IRA money (and maintain the liquidity limitations and tax benefits of an IRA classification), but allow the manager of that account to pay themselves an income from a portion of the returns (based on some expressed agreement).

i.e... I would become an investment entity, into which my family could rollover their IRA's, and as the manager of that entity I would receive X percent of returns.

Any idea about the logistics of such a situation? Would it be subject to any of the "self-directed" IRA limitations? Perhaps I should speak with some kind of business lawyer?
Post Wed May 24, 2017 5:02 am
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