value-is-what-you-get Posted September 23, 2013 Share Posted September 23, 2013 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! Link to comment Share on other sites More sharing options...
beerbaron Posted September 23, 2013 Share Posted September 23, 2013 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 Link to comment Share on other sites More sharing options...
ERICOPOLY Posted September 23, 2013 Share Posted September 23, 2013 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? Link to comment Share on other sites More sharing options...
value-is-what-you-get Posted September 23, 2013 Author Share Posted September 23, 2013 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 Link to comment Share on other sites More sharing options...
gokou3 Posted September 23, 2013 Share Posted September 23, 2013 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? Yes, they (gov't) are stupid like that. Link to comment Share on other sites More sharing options...
returnonmycapital Posted September 24, 2013 Share Posted September 24, 2013 How about this one: If you and/or your family (as a group) own 10% or more of an investment fund, you may not invest your RRSP, RRIF, or TFSA in that investment fund. I have read the tax law, I have read CRA's arguments with regard to its implementation and I still don't understand its logic. Link to comment Share on other sites More sharing options...
finetrader Posted September 24, 2013 Share Posted September 24, 2013 I believe that the reason you cannot short in a RRSP or TFSA is because you cannot go on margin in those accounts. Link to comment Share on other sites More sharing options...
mikazo Posted September 24, 2013 Share Posted September 24, 2013 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. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted September 24, 2013 Share Posted September 24, 2013 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. Link to comment Share on other sites More sharing options...
value-is-what-you-get Posted September 24, 2013 Author Share Posted September 24, 2013 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. Link to comment Share on other sites More sharing options...
beerbaron Posted September 24, 2013 Share Posted September 24, 2013 Also, a RRSP is non-recourse. Maybe it's technically impossible to have non-recourse naked options since by definition it means you are liable. BeerBaron Link to comment Share on other sites More sharing options...
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