How to make money trading options with low risk and generate income

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.