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Canadians -RRSP, TFSA and options


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Does anyone have an explanation for Revenue Canada's treatment of options in registered accounts? 

 

Specifically, I can buy a put - giving me the option to go short the underlying (which is not allowed) but I can not sell a put giving me the option to go long the underlying (which is allowed).

 

Is this a case of "selling what you don't own is short and short isn't allowed" without actually considering the nature of the instrument?

 

Thanks in advance!

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I think it's the naked options you are not allowed in registered accounts. I think the logic is that a retirement account should not be used for speculative bets.

 

Beerbaron

 

 

Yet they allow you to buy $215 strike September TSLA (Tesla Motors) call options.  This is likely because they want you not to take speculative bets?

 

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I think it's the naked options you are not allowed in registered accounts. I think the logic is that a retirement account should not be used for speculative bets.

 

Beerbaron

 

 

Yet they allow you to buy $215 strike September TSLA (Tesla Motors) call options.  This is likely because they want you not to take speculative bets?

 

Yes - heaven help me if I would risk my retirement by agreeing to accept money in exchange for agreeing to purchase a security far below it's current market price. 

I'm probably much better off buying calls for a few pennies each on that biotech that just invented that new pill that's bound to cure everything!! :P :o

 

 

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I believe that the reason you cannot short in a RRSP or TFSA is because you cannot go on margin in those accounts.

 

True, but I always wondered why you can't just sell cash-covered puts. I would love to do that, but apparently it's not allowed. Is it a technical limitation to simply make brokers disallow an order if the cash isn't there, and freeze the cash if it is? I would think they could just "virtually" subtract from your buying power until the option expires or is bought back.

 

Edit: I realize selling puts in a registered account is against CRA law, but it would be nice if that changed.

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I think it's the naked options you are not allowed in registered accounts. I think the logic is that a retirement account should not be used for speculative bets.

 

Beerbaron

 

 

Yet they allow you to buy $215 strike September TSLA (Tesla Motors) call options.  This is likely because they want you not to take speculative bets?

 

Yes - heaven help me if I would risk my retirement by agreeing to accept money in exchange for agreeing to purchase a security far below it's current market price. 

I'm probably much better off buying calls for a few pennies each on that biotech that just invented that new pill that's bound to cure everything!! :P :o

 

They limit your allocation to such calls to a mere 100% of the portfolio.

 

No, I don't think they've really done much to stop an investor from dangerous speculation.

 

They disallow margin and then they allow synthetic leverage instead -- and the synthetic variety allows for far more leverage.

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I believe that the reason you cannot short in a RRSP or TFSA is because you cannot go on margin in those accounts.

 

True, but I always wondered why you can't just sell cash-covered puts. I would love to do that, but apparently it's not allowed. Is it a technical limitation to simply make brokers disallow an order if the cash isn't there, and freeze the cash if it is? I would think they could just "virtually" subtract from your buying power until the option expires or is bought back.

 

Edit: I realize selling puts in a registered account is against CRA law, but it would be nice if that changed.

 

I'd like to sell cash-covered puts in my registered accounts as well.

 

I don't think it's a technical limitation since what you suggest would happen in a margin account anyway if you sold puts that, when exercised, would put you outside your buying power. 

 

It's probably more like this:

 

Put=Short=Against Rules.

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