Market Movements

^{*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.}

Weekly Rollout

Tariff tantrums are back on Wall Street’s playlist. Trump’s latest threat to slap steep tariffs on 14 countries—copper included—sent markets reeling. Copper prices soared, signaling traders see this as more than political theater. Meanwhile, Elon Musk and Trump are now officially frenemies. Musk floated a new “America Party,” prompting Trump to lash out on Truth Social and even hint at deportation (yikes). The feud adds a fresh layer of chaos to a market already nervous about trade wars, inflation, and now, tech billionaires going rogue.

Over in the housing market, the “for sale” signs might as well say “Investors only.” Nearly 1 in 3 homes sold this year went to cash-rich buyers, leaving first-time buyers watching from the sidelines as high rates keep mortgages out of reach. And if you're not flipping houses, maybe you’re flipping same-day options. Zero-DTE contracts just had their biggest month ever in May, making up over 60% of index-option volume. They’re the financial world’s version of speed dating—cheap, fast, and usually regrettable.

“Good-To-Know’s”

They offer various tax advantages such as tax-deductible contributions or tax-free withdrawals, but come with rules around contributions withdrawals, and penalties for early distributions. The main benefit and reason people utilize these accounts is the tax efficiency that’s associated, especially for long-term investing—more on this to come.

Contrast this to a non-qualified account. This would be something like a regular Brokerage account with no special tax treatment. You can contribute and withdraw money freely, but any income—including premiums from selling options—is taxed the year it is earned (Boo). These accounts offer more flexibility (margin, naked options, etc.), but don’t have any associated tax benefits.

Quote(s) I Like

Thought Throttle

How can we make the best use of the tax code when selling options, so we pay Uncle Sam the least amount legally required?

Well, we can’t avoid taxes entirely, but we can strategically decide when we want to pay them. Without going too deep (because this topic can get very complex, and you should talk to a financial advisor if you have personal questions), let’s look at the pros and cons of selling options in non-qualified brokerage accounts vs. IRAs.

IRAs, or Individual Retirement Accounts, are one of the most widely used qualified accounts for retirement. Unlike a 401(k), they don’t require an employer—you can open one on your own through most brokerage platforms. Just keep in mind that contributions must come from earned income.

There are two main types of IRAs: Roth and Traditional. A Traditional IRA lets you deduct your contributions now and pay taxes when you withdraw funds in retirement (typically after age 59½). A Roth IRA, on the other hand, uses after-tax money—so you pay taxes on contributions now, but qualified withdrawals in retirement are entirely tax-free. Both accounts allow you to trade within them without triggering taxes on those trades. So, the real difference is whether you pay tax before (Roth) or after (Traditional).

Yes, it can be a bit confusing, but here’s the key takeaway: the income earned from selling options inside an IRA is not taxed immediately. This tax deferral (or tax elimination in Roths) can make compounding work much harder in your favor.

What Do The Numbers Say?

Let’s assume you’re earning a consistent 2% monthly return from selling options. At first glance, it may seem like where you house those trades, whether in a regular brokerage account or a Traditional IRA, doesn’t make much difference. But the tax treatment is where the real compounding magic (or drag) happens.

In a taxable (normal) account, gains are taxed annually. Assuming you’re in the top tax bracket (37%), you lose more than a third of your returns each year to Uncle Sam. After 25 years, your $10,000 grows to about $495,783.

Now compare that to a Traditional IRA, where taxes are deferred until the very end. You get to reinvest 100% of your monthly premiums without yearly tax friction. That same $10,000, earning the same 2% per month, grows to over $3.8 million before taxes in the same 25-year period.

Even after paying 37% tax on the full amount at withdrawal, you’d still walk away with about $2.4 million—nearly 5x what you’d have in the taxable account. This is the power of tax deferral. It is not just saving money on taxes, but allowing every dollar you earn to continue working for you. When compounding is uninterrupted, the results are exponential. This is why we “kick the can down the road” when it comes to paying our taxes. Later is better than now.

Compare the Yearly Account Values

This example assumes the qualified account is a Traditional IRA, which may allow your contributions to be tax-deductible, lowering your taxable income today. A Roth IRA doesn’t offer that upfront deduction, but all withdrawals—including gains—are tax-free in retirement. Either way, using a qualified account keeps more of your option-selling income compounding over time.

Note:

This example is for illustrative purposes only and is based on several simplifying assumptions. It assumes a consistent 2% monthly return, which may not be realistic over long time horizons, especially as portfolio size increases and market conditions vary.

It also assumes that all gains in the taxable account are taxed annually at the highest current marginal rate (37%), which may not apply to all investors and does not account for qualified dividends, capital gains treatment, or tax-loss harvesting.

Additionally, this model assumes the current tax code remains unchanged, both for annual taxation and retirement account withdrawals, which is unlikely over multi-decade periods. Real-world results will vary based on factors like contribution limits, investment choices, trading costs, tax bracket, IRA eligibility, and legislative changes.

Always consult a tax professional or financial advisor before making decisions based on tax treatment or retirement strategy.

In Conclusion

Like with all strategies involving options, make sure to do your due diligence and understand the risks. Selling options can be a powerful tool, but used incorrectly, it can seriously damage your portfolio.

Use the tips, strategies, and processes we discuss here at Theta Throttle, and those that are generally accepted in the option-selling community—these fundamentals don’t get tossed out just because you’re using a tax-advantaged account. In fact, they might become even more valuable.

Throttle Q&A

What You Can’t Do in an IRA

• No Margin Selling – Most IRAs do not allow margin in the traditional sense, so you can't use borrowed funds to sell options or amplify positions. Every trade must be backed by full cash or shares. We are proponents of covered strategies anyway.

• No Uncovered Credit Spreads (at most brokers) – Some brokers allow defined-risk spreads in IRAs, but many restrict spreads where maximum loss exceeds available cash or involves naked legs.

• Limited Rolling Flexibility – You can’t roll trades that would involve temporarily uncovered legs or excess exposure—even if you plan to adjust immediately. This is because the account must be fully collateralized at all times.

• Restricted Access to Cash – IRAs are designed for retirement, so you can’t freely withdraw your premium income without penalties before age 59½ (in most, not all, cases). That means your income stays locked unless you're eligible to distribute.

• Contribution Limits Cap Growth – You can only contribute $7,000/year ($8,000 if 50+) as of 2025, which may limit how fast you can scale your options-selling strategy inside the account.

• Potential RMD Impact (Traditional IRAs) – Required Minimum Distributions (RMDs) kick in at age 73. If you're actively selling options, this could force you to liquidate positions to meet withdrawal rules, possibly disrupting your strategy.

Roth IRA vs. Traditional IRA: A Quick Comparison

Advantages of an IRA

• Tax-Deferred Compounding – Since you’re not taxed annually on premiums, all gains stay invested and compound without drag, especially powerful over decades. Seen in the example above.

• No Wash Sale Rule – IRAs are exempt from the wash sale rule, so you can roll or reenter trades without disqualifying a loss. This can be useful for active options traders.

• Capital Efficiency Without Margin Temptation – IRAs prohibit margin (rare exceptions), which means your strategies are naturally limited to defined-risk, cash-secured trades. This often forces better discipline and lowers the odds of blowing up your account.

• Simplified Tax Reporting – Trades inside an IRA don’t require 1099-B reporting or schedule D tracking, making your tax season clean and simple, no matter how many trades you place.

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Disclaimer

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