Is trading options for a living possible?
Is trading options for a living possible?
That’s what everyone wants to know.
Seems everyone hates their jobs and wants to sit back and trade options for a few minutes a day and make a very nice income.
And why not? Heck, that’s what I want. But it is doable? Is there anyone out there trading options for a living?
There are many people who trade options for a living. But most traders don’t stick to just options or just stock. The ones I know trade everything – options, stock, bonds, commodities, even forex from time to time.
Can you make living selling options?
YES again. If you don’t get anything else out of my emails, I hope you see that making 10% on an option selling trade like an iron condor or butterfly is not that hard. We do it every month. The trick is to manage your positions and avoid loses since not every trade is a winner.
There are many people out there making a living or supplementing their retirement income by trading options. And the numbers continue to grow – just look at the trend in option volume. More and more options are traded every year. The volume numbers break records every year.
And if others can do it, so you can. It does not take a rocket scientist or a genius. I know some very dumb people who are doing well trading options. And with the upgrades in technology, anyone sitting at home has access to all the data and trading tools they need – almost all of them are available for free from your broker. Option trading commissions are lower than ever as well. So consider trading options for a living.
So how much can you make?
Most hedge fund managers would sell their first born child for 20% a year returns. Warren Buffet averages 22% a year and he was the richest man in the world for several years.
I used to aim for 10% a month, now I aim for a more doable 5% a month. But even if we aim for less, say 3% that is still 36% per year. Try getting that at the bank.
How much money do I need to start trading options for a living?
It depends on your lifestyle. If you live in Texas, a 3,000 square foot house can cost $250k in a nice neighborhood. The same house would be $750k in California. Do you need to drive a Porsche or would a Honda Accord suit you just fine? Do you have 5 kids to send to college?
The amount you need depends on what your expenses are.
But to answer the question let’s say you want to make $100k a year. Cool.
If you want to make $100k before taxes and commissions and such, and you make a 36% yearly return, you need to have $277,777 in investible funds. Now, I don’t always use 100% of the money in my account. I leave about 20-30% in reserve. So let’s say you leave 20% in reserve as well.
If you only trade 80% of your account, you will need $347,500 in your account to make $100k with a 36% return on money put at risk. Let’s round that up to $350k.
Is that it? No. At least I don’t think so. I think you need to have a decent amount of money in savings and in other investments as well. I for example, have money coming in from real estate, and dividends, as well as a couple businesses that I have an investment in. So that if something bad happens to my trading or the markets, I will still have enough income to survive.
But what if you are a risk taker?
Ok so you want to gamble and go for broke. I would still try to maintain a 20% reserve cushion in my account to overcome any losses and to use for adjustments and any good trading opportunities that may come up.
But if you are a risk taker, get portfolio margin. Portfolio margin is for those traders that know what they are doing and it allows you to trade in larger sizes with less money. So with $100k you can trade up to $600k worth of options. WOW.
This allows you to make money faster since you have more leverage but you can also lose money a lot faster – so be very careful. Greed can make you do stupid things.
How long does it take to learn to trade options?
This is a tricky question. It took me several years. I had no mentor or someone to watch. Nor were there as many websites, books, and videos available. I would say that if someone was serious and put in a couple hours a day into learning and trading, they could learn to trade for a living within a year. This will not be true for everyone, but I think it is a safe number to aim for.
What if I don’t have time to learn to trade?
I am not a big fan of giving my money to others to manage and then not knowing what they are doing with it. So even if you use a service like mine which has autotrade, I think you should still know how the trades work, how to use your broker’s platform, and keep a close eye on what is going on in your account. I have had members tell me they just want to check their accounts once a year – that is just stupid. It’s your money. You worked hard for it. And you have to work hard to make sure a) you don’t lose it and b) it keeps growing.
So, is trading options for a living possible?
Yes, but it takes time, desire, and effort. Trading for a living is not a hobby nor is it anything short of running your own business. It is not like in the movies where they scream at their brokers on the phone to buy 1,000 shares of this or that and make a million bucks.
Take your time to learn the art of trading. Remember the markets will be here tomorrow. And with option selling, every month is a new game, so if you miss this month, just wait a few days.
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I am a member and will start in june with Options-Express with $25000 acct. atuo-trade.How much can i make a yr.aprox. thank you
I’ve been trading verticals, iron condors, and calendar spreads for 2 years, but what I cannot find at an affordable price, is good info on adjusting these spreads.
Depends on what you mean by affordable.
I wouldnt mind paying several thousand dollars to learn a trade that could make me money for the rest of my life.
Trading is a skill, a business, and trade just like anything else. It takes time to learn, and the people who are willing to teach you ( the ones who actually know what they are doing ) are entitled to make some money too. I would not reveal my secrets – the ones that took me years to learn for pennies either.
Genius, I am interested. Cost?
There are different price points based on what you need.
Great idea.. Want to learn more
Yes, you can make a good livng selling option premiums. Rule Number one is: never over-trade your account. Always leave a cushion of at least 40% of account value, you’ll be glad when there is a sharp sell-off or a market mini melt down, which happens lately quite often. Constantly watch your account margin at play.
Look into commodity options trading, where ROI is much greater than on equity options. And many more strike prices and larger distances from the money are a huge plus. Sam
Everything has pros and cons.
Commodity options force you to deal with commodity margin requirements which can be raised or lowered at will. And commodities are almost all based on trechnicals. That means the sell offs can be very severe. Just look at oil dropping 10% in a day two weeks ago.
I like your idea of not overtrading:always with 40% cash in hand for either avoiding disasters or waiting for great opportunities,even though I don’t trade futures or forex.Thank you.
How much would a 10% drop in wti affect your margin account ? Are there programs or software out there that can calculate this for you ??
Most people CANNOT trade for a living. They don’t have the resources or the know how. So readers please don’t kid yourself or have these grandose dreams of chilling on the beach with your laptop or smartphone placing trades a couple times a week and watch the money roll in! I just snapped my fingers so you can wake up from that dream you are having.
Hey Allen is right! For beginers, a wide spread on the
Condors makes for a good chance for some profit without
the adjustment. Less net profit but consistant wins.
The summer is here & the market should get less volitle
as the young guns & hedge boys head to Long Island for
the duration. Take advantage of this time frame.
Option Genius tels it like it is. 3% is realistic these
Thank you very much for raising the issue,that is Earning a living by selling options(option spreads).I am not sure that everybody can do it,but certainly a small number of smart people,people who are eager to learn and change,will eventually achieve that goal (selling options only).In my view and trading experiences,a consistent 3%-5% with( put spreads+call spreads,or sometimes one directional spread) with SPX and RUT trades have been 95% achievable if we move the selling striking prices REAL far away.In another words,for instance,let’s talk about the recent trade.RUT 780-770 credit put spread.If we time the market,do a credit call spread 920-930 with $0.40,then wait to leg in credit put spread 700-690 for $0.20 (or do an iron condor to collect $ 0.50),the probability of winning an ultra conservative trade will be 95%.And if we 60 contracts on each straking prices (700-690 and 920-930),we may make $3000.00 fot the trade.Then,do an ultra conservative SPX iron condor,and a couple of 3%-%5 ETF or stock option shorting.A $200k fund may make between $8000-$9000 a month,and $100k income annually is VERY possible.My point is to accept a lot lower % return,but safe and consistent return with far far out of money striking prices.I would like Allen to make a comment,and I would all the members to participate the discussion,because it will seriously enhance our confidence in this business of shorting options.
Thomas is a very smart man that we all should listen to. 🙂
He is doing well trading and does so in his ultra conservative manner.
I think there are many ways to trade, and ultra conservative is one of them. The pros are you win more times and probably have less stress since you are farther from the money. The downside is that you make less when you win, but the real downside is that you have to stay in the trade until expiration. The ROI is a smaller % and so the commissions will hurt if you exit early. I prefer to be out of a trade before expiration, but it does not always work out that way.
I have seen both ways work. i think it comes down to the temperment of the trader. For a simpler trade, go ulta conservative. If your risk tolerance is a little higher go conservative, and if you are an active trader, you can play other strategies with lower probabilities of profit but much greater profit potential like calendars and butterflies.
Allan has been my mentor,and as an early subscriber, OG letter actually led me into index option selling, and I have been doing well.I looked at each of his trades carefully,and then think.I have been trying to understand both his winning and losing trades (nobody is perfect,though).I surely learned the skills from him,but the best I got is that any trading plan must fit into my personal situation:my own finances,risk tolerance,expectations,time etc.So I believe that trading is very personal,and cannot be 100% done by any adviser,or trading recommendation letters.My two year experience has told me that earning a decent living by selling spreads is 90% possible with a smaller and consistent ROI with a fund of $200k.I am talking just about myself,though.Every member got to look at himself or herself INDIVIDUALLY and INDEPENDENTLY,and then make a personal plan.OG letter is a great lesson to learn.Hopefully,we will all graduate from this school one day with achievements.
My thoughts exactly. This service is not mean to be a money management service. I just want to be a guide that is showing you what I do so you can watch and learn from it. Then when you get more experience you can come up with your own trading style and we can compare our approaches and become better traders together.
Absolutely, tremendously Correct!
Thanks for the discussion,
I always enjoy reading Mr. Thomas Zhang’s comments alongside Allen’s!
Keep them up, please!
I got so wrapped up in reading and considering all the posts in this thread that I forgot to mention what was on my mind just prior. For so many years, I had purchased, tried and failed with many investment ideas and systems. Likewise, I had read countless testimonials from “subscribers” to those services who touted enormous profits made with those services, profits that I was never able to duplicate. Well, I am Finally, finally, able to say that 1) Allen’s service has been the best of the them all (and, I have tried them all), and 2) I am now among those profitable investors. Thanks again, Jeff
Bernie Madoff, the convicted Ponzi Scheme operator, was boasting a 12% annual return. Big Investors, institutions and charities considered it a fenominal return and invested billions of $.
One year ending with the mini crush (May 2010), my account reached a gain of 800% in 12 months. The crush itself took back about half that gain, leaving me a gain of about 50%. I am writing this not to brag, but to point out that premium selling is a very lucrative and profitable method of trading, but you relly have to know what you are doing. Regards, Sam Newman
I am always fascinated by how people want to reassure themselves that it is a real alternative to regular job. Trading for living…sounds great. However, from March 2009 to April 2011 just holding AAPL was much better alternative to ANY condors, or any other strategies. How many of you tripled your account in 3 years trading condors? Probably NOBODY? And commissions on these condors make your broker rich. If you want to retire comfortably and have 15 years before retirement – persistently buy world dominating super power stocks like AAPL, KMB, INTC and reinvest dividends. No hassles and much less intense watching over your condors. Condors are a good source of income for retired people who have hothing else to do, minimum 250k in trading account and know how to manage risk. That’s just my view.
Alex, if you are open minded, you might learn something here. You mention tripling your money in AAPL and others. My question is did you? I highly doubt you were able to pick the bottom, have the guts to buy stocks in March 2009, and then pick the recent top. Can you consistently make that kind of money? Nope. Oh and APPL does not pay dividends and neither do most of the companies that are high growth.
But if on the other hand, you had done what I and several of my members were doing, ( I got constant emails that AAPL was a favorite topic of) which was selling puts spreads on stocks during this time frame, you would have made 10% or more per month.
I’m 34 right now and could retire if I wanted to, so condors are not just for retired people. And nowhere does it say you can only trade condors. You have to use your brain too and use different strategies, that’s why there are multiple strategies.
So if you want to keep trying to time the market and buy stocks with dividends and hold on, that is fine. But don’t expect to retire anytime soon.
I’m one of those guys that bought Apples at $85.00 and now it’s almost $550.00 with about 2.5% dividends.
Lucky you. How many years did it take?
And how much of your portfolio is Apple?
So, there are a few services purporting you can start with as little as $1000 and no broker, take a few days to get familiar with the terms and then get started. I have never traded options, my broker is Schwab who has set my trading level at 0, and condors, spreads, etc are not permitted.
Am I wasting my time?
If you are listening to a service that says you only need $1,000 and you do not need a broker, then yes you are being scammed. You cannot trade an option without a broker. And in the beginning you can do paper/virtual trading which is fake money but eventually you will need read money. We suggest at least $5,000 to start so that you can do more than just one trade and you have enough capital that if you lose on a trade or two you are not at zero.
Any idiot can make money in a bull market. But most people cannot time the market. So yes you could have held Apple but if instead you had done put credit spreads like many option traders were doing, you would have made a lot more than by just holding the stock (which has no dividend to reinvest). Condors are not for every market/stock. You have to adjust your trading style to fit the market you have.
When trading for a living don’t forget to hold back part of your profits to grow your account. You will need to trade from a larger and larger base each year to keep up with inflation, etc. You do want to give yourself a raise from time to time, right?
Yes, you can make a living trading options. You can also completely destroy yourself. And many have.
The fact of the matter is that roughly 90% of people lose money trading. Of those people, there is probably a bell curve of people who lose absolutely everything, a small number of people who lose mere pennies, and a great big bulge in the curve of people who lose very noticeable amounts of money.
Most traders who claim they are making money….are not. Or, they using a very small sample of their trades.
Whether you believe me or not doesn’t alter the fundamental facts: The overwhelming majority of people lose money trading. And don’t get wrong, I love trading. I have just learned over many years that it’s much, much harder than it appears to come out with a positive equity curve at the end of the year. Any by the way, the folks who make $100K in year X? How much did they lose in year X-1, X-2, X-3?
I have loved trading for all of my adult life and many years before. I am talking about the early days of micro computers when the Apple II was in vogue. I met a man later in life, who is dead now, that gave me some words of wisdom. “Trading is going to be the hardest easy money that you will ever earn .”
He never gave credit to where he got the phrase but it was a real knee slapper and damn true. No man has worked out all the angles.
I agree with Al’s comment. I have been impressed by Allen’s candor with regard to his trades, especially his willingness to take responsibility for the service’s dismal performance in July, where his option trades lost more than 50% of Client’s total capital. He definitely has worked diligently since then to refine the trades, and we should soon be able to recoup our losses, get back to even, and eventually become profitable! Keep up the good work,
in addition to previous comments: My returns on way out-of-the-money put options sold has been 5% to 10% lately. Also any trade I make has a mental stop loss of 10% to 20%, depending on the strike price and month. I found intraday news media comments can cause a stop loss to trigger, only to have the stock end higher by market close.
Good luck trading,
There’s a trader, Roger, who uses stop loss for breakouts and EMA20 for pullbacks, in his swing trading. I have been learning vertical spreads, thanks to Allen, and 2-3 other teachers since last Spring. I began in my paper acct. only so I could study and learn from my errors w/o cost. In the past 2 months I carefully entered a few cash trades. The only losses were from trader error, otherwise good trades, albeit some returned less than 5%. I have done this with a $1K account! My goal is to finish 2014 with a profit balance. Next year I will raise the bar–realistically.
What is the least risky way to trade for win % age what options strategy, just to build income to make a few hundred a month any help is appreciated thanks very much Pete
I can tell you from personal experience, after 15 years of trying everything stock/option related, that I am now enjoying regular monthly income from using OTM Iron Condors and credit spreads. It’s not for the faint of heart!
All I can say is trading is a business and treat as such. You don’t have to trade complicated legs. Use spreads, risk reversals,collars, buy writes etc. That will get you there. Don’t gamble but put on smart positions and be prepared to roll up, down and out. Also, you don’t have to just rely on options. Be long on momentum and use short puts to get into stocks you want to own at lower prices, know your technical levels and know how your stock trades. A 1/2% per month on a million dollar portfolio, doing what you love. Retirement??? Really???
Sorry guys!!! Watch the math…..1/2% a day.
Well , i have been doing option writing from last few years and always thinking – can i become a full time trader and leave my present job ? after a very deep analysis i have reached a conclusion that yes it can be done but with few conditions :-
– 4% monthly income is possible and I have done that consistenty. So if you have a capital base of 25 times of your present monthly salary ,you can surely think of equating your income.But to be on safer side, if you have amount equal to 6 months of monthly income as safe money in your account in addition to 25 times of your salary as capital for spreads , it really makes sense to go full time in this trading and live that lifestyle which optiongenius has written about in his blogs.
If you have saved 25 times your salary you don’t need to trade. A simple portfolio of dividend paying stocks that raise their dividends above the rate of inflation will provide income and a better raise than any job you could have and all you have to do is manage your portfolio.
Couple problems with this Steve.
1. You have to save 25 times your salary…How many decades will that take you?
2. Dividends do not always outpace inflation.
3. You are giving control of your income to companies that can cut or eliminate their dividend without notice.
4. In order to save that much and then live off dividends you would essentially be living like a pauper for most of your life.
So although we love dividends, and we want to own strong dividend companies, we also want to know how to easily boost our returns on those holdings.
If you add a couple simple strategies that use options, you can, in very little time, and very little risk, add another 12-36% to your returns every year. And if you get a little more aggressive you can make even more.
Mr.Allen is right, it takes at least a year to make consistent money, if you are not familiar with certain stock movement don’t trade with horizontal spread, it’s better with vertical spread since the stocks like IBM, APPLE, will go up and down for 8-10% in a day. Remember the proverb of SUN TZE, know your enemies in tact then you can win the battle. I was twice almost make money in IBM (my IBM spread was in the middle of down side and upper side of break even point)but at the last two days it jumped up and down for as much as 9% per day. I am not sure can anybody adjust around 9% in the last two days before expired.
I’m not quite if anyone can give me some insight on this at all. Within the last year. My father has been wanting me to take over on his accounts and help out with trading options. He has been trading for 25 years now, and has been very successful on trading options. His assets are quite substantial, and my only concern is whether I would be successful at it or not. I am 24 with a College degree, and have been studying him off and on for many years now. Didn’t know if anyone has the same kind of story, and done well or not. My hesitation is this would be considered a living kind of job for me, and I would be dealing with a descent amount of assets.
Sorry Brandon, I dont see the problem here. You are getting a gift that anyone else on this blog would kill for.
1. you have enough assets
2. you have a live, one on one mentor that knows what he is doing.
Yes you can do it. If I can, and he can, you can. Just start.
One thing you can do, is get him some screen capture software like Camtasia. Have him record the screen whenever he trades, and speak his thought as to wy he is doing what he is doing. After a couple weeks, you should have a great insight into his style and methods which you can duplicate. And you will have a record of the lessons to watch over and over.
Hello fellow investors,
I was not planning on commenting, but after seeing Brenden’s comment about his father being his mentor, I felt obligated.
I am 21 years old and have been trading uncovered options WEEKLY for 2 years (full time). I am currently at 38% return YTD. I have attended a local university and was medically separated from the Air Force at the age of 19 (achilles tendon problem). I spent time working at banks and film production companies… searching for my calling. In the time being my brilliant father, after undergoing life threatening heart surgery, was trading options full time.
I learned more about options when RIM was announcing their earning report (black berries began to suck). I bought some puts way out of the money and BBRY/RIM began to collapse after the conference call. I did get help from my father with the initial investment. I just knew that the new iPhone was beginning to get huge and Blackberry was not going to keep up.
After that, I got hooked… well now its a few years later and I can honestly tell you guys…its been the best decision I HAVE EVER MADE. Thank God for this.
Ill be honest, to be able to stop working, you will need a good amount of capital, a tier 3 account and TIME.
Options are not for the faint of heart and not for someone who just wants to trade a couple times a month. TO MAKE MONEY YOU HAVE TO TRADE EVERY DAY. Thats the big secret that no one here seems to be talking about. I trade naked strangles weekly and sometimes I will buy, but ON FRIDAY. I sit in my office from 7-3 Monday – Friday and trade. People who say they are only placing a few trades a month, or even a week are missing the point.
If you really want to make money anywhere in the world investing, you will have to commit your entire life to options trading. If you are just wanting to mess around, or place a couple trades and go have a long dinner, or play golf (without watching your investments) you will FAIL. I just don’t want people to throw away their hard earned money… or sell their house when they have a FAMILY. That is irresponsible. If you are young and reading this… START NOW!!
I would say more, but I am busy and just wanted to add my quick comment.
Most of the traders I have known started out conservative and then got bolder and more aggressive as time went by. Eventually they all lost it all by not sticking to a disciplined system. Only put 10 percent of your money at risk at any one time and look to earn 2-3 percent in any options expiration period. The biggest thing I have learned is to keep my day job and try to earn 500 – 600 dollars per month. Even as my bankroll has increased, I stick to that simple plan. It has funded my IRA and now I use this strategy inside the IRA. Good luck to you all and thanks for the posts.
I haven’t seen any comments on trading weekly expirations, particularly the SPX. Anyone care to comment on this strategy and the results they have achieved – and how? Thanks for your input!
Yes, trading for a living is possible. Obviously there is a learning curve involved and it is impossible to say how long it will take for each individual. I first learned about options trading in 1996 and I am still learning new techniques now. So learning is endless. And you do need a decent amount of capital to start. Again, there are many different opinions on what is the “right” amount and there really is no such thing. For example, with a small 10k account, you can trade Iron Condors and get a pretty good monthly return, probably not enough for a living but if you build on it for 6-12 months, it is possible to double your account size. Then you can increase your volume or add another stock or index to diversify. Selling covered calls, selling naked puts to acquire stocks you like at low prices, selling strangles, vertical spreads, iron condors, ratio spreads, ect., ect., are all fantastic strategies. The biggest obstacle to trading success is YOU. You must have the right mindset. You must have a trading plan with profit targets and stop loss points. Then you MUST follow this plan, deviation from your own trading plan is a recipe for blowing up your account. TRUST ME on this point, I KNOW! I learned the hard way! You must be mentally stable and as emotionless as possible. Must understand that there will be losing trades which you cannot take personally. A losing trade is just that, nothing else, it does not mean you are a failure or loser or you suck or whatever. Take the loss, MOVE ON. And yes, trading is a BUSINESS in every way. You will have expenses like data feeds, charting software, commissions, taxes, and paying for education at seminars, classes, one-on-one mentoring and so on. So with all of this to keep in mind……The answer is still YES YOU CAN MAKE A LIVING TRADING and YES TRADING OPTIONS is one of the best ways to do so……..
Let me ask you MJ, how long did it take you before you were making enough from trading to pay for your monthly expenses?
thanks for sharing.
Many years! Like I said, I got into options trading in 1996, I immediately liked the idea of being a net seller of premium. But I did not have sufficient capital at that time so I kept my day job while learning and building my account. It was not easy. I almost gave up. In fact, I stopped trading for three years but then in 2003, I came back to it. In 2004, I was lucky to land a low paying job that allowed me full use of the Internet so I was able to install my trading platform and monitor the markets while I was at “work” hahahahaha!
But in all honesty, trying to build a 10K account was not easy. Back then I did not know what I know now. I would have some success and then a loss would set me back to square one.
In 2007, we sold our family home (lived with my parents and sister) and took my share of the money (250K) and set myself up with an options trading program. Having this windfall capital really helped because I was able to diversify and use many different option strategies. For the past several years I have been able to make anywhere from 5% to 8% a month using various option selling techniques trading equities, grains, and crude oil.
One of my most effective strategies is to sell naked and strangles on very far out of the money options (usually having 90-120 days until expiration) on crude oil and corn. For example, most have heard about how grain prices exploded higher because of the drought back in August. With corn trading above $8.00, the December $10.50 strikes had premiums of over $1,000 per contract. I sold 10 of them the week before Labor Day. My reasoning was that with corn having already spiked up $2 and with harvesting and cooler weather on the way, the possibilities of corn going to $9, $10 much less $10.50 were extremely low, not impossible but extremely low. For my stop loss I used the 200% rule, which means that if the premium of the options I sold doubled, I would exit for a loss. And yes, I learned this rule from reading The Complete Guide to Options Selling by James Cordier and Michael Gross. In any case, these corn options expired worthless recently and I pocketed $10,000. It was one of the easier trades of the year for me! Too bad not all trades are this easy!
Especially with commodity options, I tend to look at farther months for strikes that are very OTM, sometimes the premiums are very high on strikes that are above or below all time historic highs and lows. It would take an extreme change in fundamentals for such levels to be reached. And even if it were to happen, I would have plenty of time to get out of the way because the strikes are so far out to begin with. Patience and discipline is key here. And yes, a certain amount of market timing is needed plus you must “know” the trading tendencies of something such as harvest times and planting seasons with grains, summer driving season with crude, ect,.
One indicator I like to use is the Williams % R, when it is above 75-80 I tend to like to sell calls and when it is under 25-30, I would look to sell puts. Again, this is just ONE indicator, it serves as a guide and DOES NOT in any way guarantee a profitable trade. For example the Williams % R on LNG stock was over 90 past few days, sold some calls yesterday and LNG is selling off nicely I type this.
Sorry my mistake on the Williams % R numbers…….I said it in reverse!
What I meant to say was I tend to look to sell calls when it is above -25 and I tend to look to sell puts when it is below -75
Sorry for the confusion!
There is some very good advice in this thread which should be read by anybody who considers trading “seriously” to the extent that they are living off the income. Yes, it can be done. No, it cannot be done by everybody. There are many people who simply lack the discipline it takes to run a conservative trading program which yields 3% to 4% a month, month in, month out. The techniques are not that tough to learn, and the more experience you have, the better trader you will become. The trick is to resist overconfidence and the tendency to increase your position size beyond what you can safely afford. Start with $100K and a written plan. Keep detailed logs and review your methods on a regular basis. Own your failures as well as your successes. Never stop reading and learning. It really helps to have a mentor who knows what he or she is doing. Don’t act on impulse. Option trading, especially delta-neutral or volatility trading, is like trading in slow motion compared to trading forex or straight commodity futures. you have time to think and make the right move. Have predetermined exit points and stick to them. Finally, recognize that sometimes, no position is the best position. Good luck.
All very good points Log Normal. IMO, discipline is the absolute key to success when it comes to trading, especially when it comes to trading options. Achieving a 3%-4% return per position using options is very much possible but like Log said, it will feel like slow motion and one must avoid the temptation of adjusting the position when no adjustment is needed. I have day traded equities and commodities where I was able to make the same amount in TEN SECONDS what I would have to wait 90-120 days to make writing a strangle but the risk on that ten second trade is huge and all it is was “gambling”. I had no “edge” with that style of trading. It was simply is 50/50 bet, would’ve been the same as betting on black or red on a roulette wheel. Day trading is an entirely different world.
Last week I placed a strangle that will not expire until March 15 of 2013. The strikes I selected are very very far out of the money and the chances of both expiring worthless is quite high but I must have the patience to wait it out to achieve a very nice return of about $4,000. Most days, especially the first few days, maybe weeks, NOTHING will happen. Your P/L will barely fluctuate much (for some people this is actually a good thing, very little dramatics, you can sleep well at nights!). It is VERY BORING. But slowly, day by day, the premiums on both the put and the call will slowly go lower and lower due to time decay. My risk parameters on this position is double the premium for which I sold for. Since this is a strangle, I am hedged on the opposite side. Should I need to exit for a loss, it will be cushioned with some gains (generally about half of what I lost) from the opposite side of the position.
Like Log wrote, developing and writing out a trading plan is absolutely essential. The plan should include your profit targets and stop loss points. Know how much you are willing to risk BEFORE you even enter your position. And once you are in the trade, DO NOT adjust the position unless one of your targets is reached. I have been trading options since 1996 and I still struggle with this from time to time. As humans we are wired to want to be hands-on. We want action and with a conservative options trading plan, there really is not that much action required. When trading this way, I often go days, weeks, even an entire month without entering or exiting any positions. It really is a sit and wait approach. But trading this way is PERFECT for people who have a “day job” because there is no need to be glued to a computer screen 24/7. And you must have the discipline to exit at your predetermined stop loss point when your stop is reached because most of the times, your stop loss point is a mental one. The key is to eliminate the “let’s wait a bit and hope it reverses” attitude. From my experience, every time when I have taken the “let’s wait and hope” approach, I ended up losing 2x-3x-4x more then what I was willing to risk when I entered the trade. DO NOT DO THIS, THIS IS HOW YOU BLOW OUT YOUR ACCOUNT! I know this is a very over-used cliche but PLAN YOUR TRADE and TRADE YOUR PLAN. I cannot stress this enough.
Is it possible to trade with option genius with a pot as small as $3000.
I am based in the UK and have been trading Forex on a spread betting basis [this is tax free in the UK]. for the last 3 years.Is it possible to trade options on a spread betting basis.
I look forward to your reply.
Regards Bill Hillman.
$3,000 is probably too little. We suggest $10k to start or at least $5k.
Sorry but I dont know what spread betting basis means.
I’ve read somewhere while browsing options forums that it becomes harder to increase ROI as your capital increases. Is this true, if so IYO at what account size does it become difficult to invest in options and why?
Answers appreciated. Thank you.
I don’t think that is true. Even if you were only trading SPX options, you would have plenty of liquidity until you got into the tens of millions or even hundreds of millions of dollars. With spreads if you want to trade with more money all you have to do is increase the size of the spread.
More and more options are traded everyday. I have never met any professional trader that could ran out of opportunity. If you limit yourself to one or two stocks, maybe. But otherwise, no.
Sorry about my ignorance, but my question is: With more and more people trading options, wouldn’t it affect the strategies effectivity (the over-saturation of the options market)?
I hope hearing from you as soon as possible.
Thanks for your time and comprehension.
With more people trading it will increase the liquidity which is a good thing. But if everyone uses the same strategy then it will stop working.
If you trade in large indexes or stocks it will take some time before this starts to happen.
But you should know in advance what you would be willing to accept as a risk/reward scenario. if you are a butterfly trader, and your condition is that your flies need to have a 50% of great probability of profit and have the potential to make 60%, then when you look for trades you have something to shoot for (this is just an example – these numbers are made up). If you start to notice that it is harder and hard to find trades that meet your condition, you will need to find out why. If it is because too many others are doing the same trade, then you will need to go find another strategy.
The good thing about options, is that there are plenty of strategies to choose from and you can even come up with your own.
Yes you can trade options for living. I start my trade using technical analysis with following minimums:
1. Underlying instrument is trading above 20 ma.
2. I see a MACD divergence in oversold area
3. Stock trading near lower Bollinger bands.
Once above pre requisite have been met. I create a collar with reduced cost of hedging.
1. Start my trade by calendar spread of puts I.e. Sell at the money nearest puts and buy 6 months just out of money puts. I do this for 1/3 of my total exposure. Eg. stock trading at $19.95 I sell Jan 20.00 puts and buy June 19.50 puts.
2. I wait and do the same at 20.95 or 18.95
3. Once my setup and hedging (approx 3% of my capital with calendar spread) is complete , I start selling covered calls on assigned puts else sell puts for 6 months. If the stock has weekly options, you make money selling straddles/strangles every week – 2.5 % of your exposed capital whic is hedged also.
4. I have been trading options in Australian stocks for over 15 years and this is what I m most comfortable.
5. I have paid lots of money in educating myself but it is your will power and risk profile that will help you develop your own system.
By selling options you don’t mean naked selling, right?
Naked puts is a option selling strategy, but not one we use in this service.
I would like to start trading, selling puts or call options. Please provide some additional input.
Sell puts on companies you would love to own! Easier on your heart and savings account.
Just caught this blog out of the corner of my eye this morning…There is some wisdom to be gleaned from some of these posts.
Specifically, and I agree with the Options portion of my personal portfolio- High probability and low risk coupled with correct position sizing is the key to managing a successful options income portfolio. I know I do it for a living and am truly blessed!
Here’s one for the pessimist…
“THE MOST DIFFICULT SUBJECTS CAN BE EXPLAINED TO THE MOST SLOW-WITTED MAN IF HE HAS NOT FORMED ANY IDEA OF THEM ALREADY; BUT THE SIMPLEST THING CANNOT BE MADE CLEAR TO THE MOST INTELLIGENT MAN IF HE IS FIRMLY PERSUADED THAT HE KNOWS ALREADY; WITHOUT A SHADOW OF A DOUBT, WHAT IS LAID BEFORE HIM.”
–LEO TOLSTOY, 1897
Good Luck to you all…And remember this:
“ALWAYS BE HUMBLE” – YOU COULD BE WRONG!
Thank you Allen, and all who commented.
This Option Trading has me VERY interested.
I notice everyone giving advice but what I don’t see is where can you go to learn more abut this like?
There must be the “bible” of Option Trading for the beginner
I mean, how did or where did you learn this?
Everyone gets started in different ways.
If you are looking for the “Bible” I would say that is probably Options As A Strategic Investment.
But then get ready to read, cause it’s long.
Once you get the basics, you have to actually start trading. That’s when the fun and losses start. In no way is options trading easy or else everyone would be doing it. But it is doable if you stick with it, treat it seriously, and keep at it. It doesn’t hurt to have a good mentor who actually knows that they are doing. Too many “gurus” dont even trade.
I see I posted here last year on May 24th 2014.
Well, Here I am again, it’s now March 31st, 2015. Living proof that one can truly make a very nice income trading Options!
I re-read through many of these comments, and I still concur…If you have the tenacity to learn and succeed, Selling Credit Spreads is to me…the best strategy there is to invest- Bar NONE!
I will not disclose in dollars how much I make each month, because most of you wouldn’t believe it! So, I’ll just give you an example:
If you had a 2Mil Portfolio that held all Blue Chip dividend paying companies- averaging 5% per year, that would be $8,333.33 per month.
In options, One can easily make $10K per month with an $80K account, and still only use 60-70% of the capital. That means that 35-40% of the accounts capital is never put at risk.
Where else you can create those returns with an 80% average Probability of Profit when opening every trade?
My answer to your question: “Can I make a living Trading Options?”
I do…but, I don’t know if you can or will.
Learning Options- Takes work.
If you really want it, be patient, put your nose to the grind stone and
“Just Do It”
Almost everything you need is on the internet! and a Good Mentor never hurts:-)
One can easily make $10K per month with an $80K account, and still only use 60-70% of the capital. That means that 35-40% of the accounts capital is never put at risk.
Good luck with that! lol That means using $52,000 of your $80,000 to earn $10,000 a month! almost 20% a month!!! In what world does that happen on a consistent basis?? Thanks for the laugh!
Thank you for the information, I didn’t think anyone would reply.
Just 2 more questions.
1. Why Trade Options, say over stocks, bonds, mutual funds, etc
2. Where do find these good mentor?
Why trade options?
I guess that depends on you. If you just want to hand over your money to a “manager” then go with mutual funds. Bonds are nice, with low returns. Stocks are nice with decent returns. Options are nice too.
There are a million ways to do well in the markets.
Every trader/investor has to find what they are good at, and what they can handle risk-wise. Can’t handle risk? stick with treasuries.
2. A good mentor? Find some successful traders and ask them. If you find someone online, make sure they actually trade and don’t just “teach”.
THANK YOU, for the information.
Last question for a while, I promise.
I know you get asked this a lot but I couldn’t find anyone who has asked it yet.
Someone getting into the market.
Who doesn’t mind risk and has some spare change for capital to play the market.
In you’re years of knowing what you know now.
What direction would you recommend he start into?
You know that this is just a blog, and not a place to write books right? Just teasing.
The answer to your question could be covered in maybe 200 pages. Maybe.
Depends on the person. How much to risk? How much experience with stocks do you have? How much time can you put into trading and learning?
There are plenty of Intro To Options books out there.
We have in our members are something called The PaperTrading Workbook. This walks you through every trade type from basics to advanced with exercises to get you to understand how the orders and strategies work. it is work joining just to get this workbook.
If you already have an account, i would focus on one strategy first. Trade it and get good at it. Then look for something else you can add to it.
For example, start with selling covered calls. Relatively safe trade in a bull market. It gets your feet wet. There is tons of info online about how to trade these.
Then I would look at credit spreads, both puts and calls. We have info about these on the blog, in the members area and check out http://www.simonsaysoptions.com
Then iron condors.
Then butterflies, calendars, ratios, and the others.
You only really need one strategy that you like and trade well.
Oh, and I would suggest going with monthlies first. Weekly options are very sexy but they can burn you very quick especially if you are new.
I thought I’s add my options trading tale to it. I’m retired. Twice. Spent 22 years in the U.S. Air Force. Then spent 22 years in real estate, which included owning my own real estate brokerage for 14 years. Owned residential rental properties in Hawaii, New York and Florida. Began dabbling with options trading in 2016 as a hobby. My online broker had free education videos I watched and re-watched. No paid mentor or advisory service. At the start my new hobby made me a few hundred dollars a month. My plan was to get out of the absentee landlord business once I had proved I could favorably supplement my two retirement pensions with my options trading. The past year of cautious, conservative trading from a very modest account has begun to bring me $1,000+/month in net profits. I know I still have much more to learn. I recently sold one of my rental properties for twice what I paid for it, and half of the profits are being dedicated to my options trading hobby. I’m adding a couple of trading strategies to my trading plan and expect to expand my monthly profits to $3,000+/month within the next year. Having fun. Living comfortably. Subsidizing my grandkids’ lifestyles and college tuitions. I’m NOT day trading or chasing the proverbial pot of gold. I’m just learning more about options trading as I go. However, I believe if someone chose to be a full time, conservative options trader, and started with say a $30,000 trading account (I started with $10K), they could enjoy a $60,000 annual income, maybe without quitting their full time job if they traded after market hours. My advice? In short, develop a conservative trading plan, paper test it (although I must admit I never did do that!), and stick with the plan if it proves to be worthy. By the way, the male members of my family tree have a multi-generational history of developing Alzheimer’s Disease. I’m planning to use options trading as long as I can, along with a little on line poker, to keep my brain active enough to ward off the onset of that ugly disease. Wishing anyone who may be able to read this good luck with their own techniques for their own reason.
Allen try’s to teach ( learn to sell time and make money ) Don’t go into this business w/the mindset to make a living. Go in w/mindset to make a piece of money each month.
Bull and Bear credit and debit spreads will sell time. I use both to make monthly income. My Broker only charges me 0.50 flat a contract, so going in and out on debit spreads is not a problem.
Learn to trade smart, plan your work and work your plan trading options selling time value and like Allen say’s (don’t be greedy just get a piece of money on every trade) Spending money to learn is not expensive, ignorance is a costly factor trading options!! Good luck from a 91yr old trader
I want to learn how to trade options, and have been very interested in this for at least 2 years. Here is my concern: I have 10k-12k to risk. From reading these posts it seems to little of an amount. All opinions and advice will be appreciated.
Andrew, it is best to start small, maybe even with less than you have right now. Like anything, trading takes time to learn. If you want to do this, start today, and start learning and trading. In the beginning the goal is just to break even. Dont worry about making money. If you can break even several months in a row, than figuring out how to be profitable is easy. Just get started. Papertrade and learn. Good luck
Really enjoying the lessons, podcast and blog’s
I am very confused at why people are saying that even making a 500% return yearly is impossible. I trade both, options and stocks. I mainly stick to stocks as I am much more familiar with them. My current portfolio for day trading stocks is ~$35,000 and while I do have that much, I usually only use $25,000 just to bypass the PDT. My average earnings per day is 4.5% from the 25,000 I put in. I usually do no more than 5 trades. There are of course days where I lose money but like stated above, my daily average is 4.5% and my stop loss kicks in at 2.0% of my investment. With options, the PDT rule applies as well but since I am not such an expert on it, I tend to only put in no more than $5,000 BUT from my experience, the reward is much higher and the risk is much lower than day trading stocks. While there are people who made hundred and thousand %s from options, I make on average of 23% every week which includes 2-3 option trades per 5 days. Now think about it… lets even round it down to 20% and you have $5,000 for options (I stick to Long Calls and Long Puts 99% of the time)… THAT’S $1,000! The title does say trading options for a living and that is exactly what I do. I am not understanding to how people are saying it is impossible. I do however have a job other than trading just for backup as a regional airline pilot.
You can profit way more a month by just using barely out of the money strangles a good percentage of the time. Options trading is not for rocket scientists, believe me. I’m not good at a lot things but I’ve been able to profit from options trading more than I thought I ever would in my wildest dreams. I think a huge mistake people make is overthinking strategies when it comes to options. Yes, you obviously don’t want to blindly buy far out of the money calls, but if you trade around volatility with simple strategies you will probably profit. I listen to traders on television giving advice to by 4,5,6 strike prices. Buy this, this, this and this, and sell this. It’s nuts, while a simple strangle would have worked. If the options are too expensive, don’t trade it! That’s all there is to it.
One thing that makes me skeptical of a 2-5% per month return indefinitely is that market neutral option strategies are zero-sum. For every dollar you make selling an iron condor, the person you traded with is losing a dollar. And given the way option market liquidity works, you are almost always trading spreads with option market makers. These are very sophisticated investors who are not going to repeatedly do trades that lose them money.
The only thing I can think of that would explain such a scenario is if the market maker is willing to do trades that lose them money 90% of the time if it means 10% of the time they will win big and make it all back. A normal investor is probably unwilling to do this sort of trades but market makers have deeper pockets, higher risk appetites, and longer horizons. However, if this were the case, it implies that anyone doing option trades that make money most of the time is doomed to lose it all eventually (or enter a stretch of time during which their losses must equal their previous gains before they start “winning” again).
That would assume every option trader is out to make money. Options are used by professionals and institutional traders primarily as a hedge, as insurance. They want their options to expire worthless just like we pay for life insurance but hope our family does not collect for a long long time.
Good article. I feel the author did a good job of letting the inexperienced trader know that their are many variables that come into play when awnsering this open ended question.
One item that wasnt covered was looses and how often that 10%, 5% or 3% isnt what you end up with.
Thanks good info
Lol I’m starting with 500$ going to have to take a lot of risk
To trade for a living it will take some time if you only have $500. But you can add to that. Gotta start somewhere.
I have an account at TD Ameritrade and although I’ve been approved for options trading, I have been turned down for spread trading which your course promotes. I don’t think you mentioned how difficult it is to get approved. Is there any way around this, or use a different broker?
It all depends on how you answer the questions they ask you. If you tell them you have no money or experience and only way to preserve capital they will say, Sorry options are not for you. But if you are taking classes and learning you can call them and you can probably get approved by talking to someone. if that does not work, then try another broker. There are plenty to choose from.
Hi, I’m located in Australia & have been trading Oz equity options for last 5+ years thru my Super/pension account (totally tax free!). Trade only naked puts & covered calls (all DIY learning) – started small making $8k 1st year, now average $150k+ (option premiums + generous Aussie company dividends & capital gains) – my trading capital is around $1.5m – around 85/90% of my position expire worthless each month. Have survived the Brexit vote, Trump election, Dec 2018 correction & now Covid. Great skill to learn along with your day job. Makes a massive difference in retirement – all the best!
Great information. Just what I needed.