Cover call writing in qualified plan?

[Spencer]

I have a client with a 401k plan with self-directed accounts. One of the participants wants covered call writing as an investment option. The only investments specifically excluded under plan's investment policy are collectibles under section 408(m).

Does anyone have experience with this type of investment? Is it okay to allow in qualified plan? Thanks.

[LCARUSI]

I have some literature from Fidelity indicating they allow option trading in brokerage accounts in 401(k) Plans. It is limited to level 1 and 2 option trading, but that would clearly permit covered calls. Participant must fill out a separate application for option trading and be approved.

[Scuba 401]

I dont know whether it is allowed or not but covered call writing is the most conservative of all options strategies. the stock holder (participant) is simply selling an option on stock that he has in his account. he gets a premium and the purchaser of the option makes a bet that the stock is going to go up. if it does, the holder of the option gets to buy the stock from the option writer (participant). thus, the writer of the option (participant) is only losing what he would have made from the upside move in the stock. if the stock does not move, the participant keeps the stock and the option premium.