Can I Make a Living Trading Options?

So how do you support yourself by trading options? How do you turn the contents of your stock portfolio into a workable income? These are questions people have been asking since before the dot-com bubble of the 90’s and early 2000’s. They’re questions investors still want answers to.

There is a small population of financially solvent options traders, and this article presents ten methods they use to ensure their stability and financial wellbeing.

1. Does Trading Options Work?

Options can generated a living, but what’s more likely to create stability is a diversified trading environment ranging over the full scope of commodities, forex, bonds and stocks. The more robust the profile the better the results.

2. Can you make it Work with Options Alone?

Not every trade nets income, and if you encounter a dry period in options with nothing to fall back on you could encounter real consequences. While the option market is getting bigger and more diverse every year that also means it’s harder for an inexperienced investor to navigate. Still, getting by on option trading alone can be done with the aid of the right brokerage, the right technology, and the right self-discipline.

3. So How Long Does This Take to Learn?

It depends on the trader in question. Some people pick it up quickly, some are lucky enough to have experienced help and advice, and others struggle with the basics but come to understand them after rigorous effort. A safe estimate seems to be that within a year you’ll be picking up the knacks and skills that make the lifestyle workable, but it can take years after that initial burst of education to develop real finesse.

4. What Kind of Investment do I Need to Generate Livable Income?

This number can, obviously, vary wildly. Your needs as an individual are the only determining factor. Where do you live? Do you have children or dependants? Are you required to travel often? What are your other expenses? Is property value high or low in your area?

Consider carefully the egg you’ll need to generate the amount of money you’ll live on. Let’s say you expect a 25% return on investments yearly. If you’ve got 100,000 USD in solvent assets that means you’ll rake in 25,000, a livable amount for a single person in an affordable area, but the stake itself is significant and returns may not always be so good.

5. Rules

Create a set of rules for yourself dictating sale conditions and don’t deviate from them. With this discipline self-imposed you’ll be less likely to engage in gambling behavior, a method of investment characterized by unrealistic expectations and senseless fiscal risk-taking. Try to think of it as a safeguard against your own reckless or overreaching tendencies.

6. What’s an Acceptable Level of Risk?

There’s a common attitude among traders who see potential for a big score or have seen enough deals on which they acted cautiously go right through the roof to have an impulse toward risky behavior. Well, a little risk-taking is okay but first you’ve got the understand the worst-case scenarios and their consequences. Can you afford to lose fifty percent of your assets? Can you afford to lose sixty percent?

As a personal rule of thumb I would argue for the preservation of at least 30% of your personal assets as a cushion against total financial ruin.

You should always remember, too, that greed is a powerful motivating factor with little to no basis in logic. When you can taste that new house or car it can be hard to tell yourself “no, slow down, we’ll get it next year,” but this is exactly what a responsible trader has to do.

7. And If I Don’t Have Time?

Then get a broker you trust to the ends of the earth or else stay out of the game. Even if you’re using computer programs with set parameters to execute trades for you, it’s important that you know how those programs work and what sort of economic situation you’re putting yourself and anyone who depends on you in.

A bad setup can really hurt your financial situation. Unless you can take the hit it is strongly advised that you take the time to educate yourself about at least the basics of options training.

8. So it Works, Then?

It does. Options trading is a reasonably accessible and sustainable way to make a living, and while it’s certainly not for everyone it isn’t exactly a club for rocket scientists either. Really if there’s anything to it it’s a drive to succeed, a cautious but not timid personality, and access to good financial advice.

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