February 27, 2015

Advisors Option 28: Breaking Down How Options Can Benefit Advisors

54 minutes

Listener Mail: Listener questions and comments

Question from Nancy N. - Would you recommend a covered call fund for a newcomer to options? How reliable is the income stream from these funds versus a typical dividend income-fund? What about put selling funds? Are these too risky for someone of my relatively advanced age and low risk tolerance? Thank you for this wonderful program. I am currently in the market for a financial advisor and I have used your episodes as a guideline.

Question from Sanjay Puri - Thank you for your very informative podcasts on the options insider radio network... Been an avid listener for the past year and have devoured most if not all of your podcasts, converting this erstwhile buy and hold equity investor into an amateur-ish options trader / investor!!! :) Deeply appreciate the good work you guys are doing - and look forward to more insightful content from the crew! My options trading has been mainly done from Roth IRA accounts, mine, as well as others in my family - wherein the earnings are tax-free. Curious to learn from the expert panel on your suggestions for ways to achieve the following:

Increase the capital deployed / contributed within the Roth IRA accounts and overcome max contribution limits of $5,500/year, to reap bigger tax-free earnings in the Roth IRA, by larger trades while still keeping ~50% of the capital as dry powder for potential adjustments, and for other attractive opportunities as they emerge. AND / OR

Minimize (or better still, eliminate! ;-)) the impact of taxes on earnings in other non-tax-advantaged account types, such as a regular brokerage account etc., with more flexibility on cash-in and cash-out.

Are there ways to have a business entity such as an LLC or an S Corp etc. own these ROTH / brokerage accounts, resulting in different tax treatments arising out of factors such as business expenses etc., with me either as an individual or another legal entity being appointed as the "money manager" or something along those lines for these accounts? The gist of what I am trying to achieve is increase capital deployed and eliminate or at least minimize taxes. Some additional context for you better see the big picture is as follows:

Currently have ~$30k in Roth IRA accounts.

Interested in deploying another $30k currently, and potentially more over time in a tax-optimized way - since taxes are the single largest, and almost certain expense item on the P&L - barring for trades gone bad, resulting in losses.

I realize and am fully aware that I should consult a CPA and that you do not provide tax advice on the show - but I am sure you fine gentlemen have probably come across ways these goals may have been achieved. Besides, the couple of CPAs I have spoken with so far, seem to have been mainly focused on the more conventional salary / W2 income - so if you are able to point me to some CPAs / firms that might be able to help, I would deeply appreciate that too! Thanks a million in advance for your feedback and for featuring this rather long email. :) Eagerly awaiting enlightenment from the wise ones!

Tricks of the Trade: Today's guests are Keith Black, Ph.D., CAIA, CFA, Managing Director of CAIA (Chartered Alternative Investment Analyst Association) and Ed Szado, Ph.D., CFA, Assistant Professor of Finance, Providence College, Director of Research, INGARM (Institute for Global Asset and Risk Management).

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