Options Trading has been around for awhile now.
Yet the elusive question on How to Make money trading Options still remains a mystery for many retail traders.
Www will take you through an in depth discussion on How To Make money trading Options the right way in 2021 and beyond.
At the end, you will be as ready as you have ever been in Taking your Trading to The Next Level.
Table of Contents
Does Anyone Make Money Trading Options ?
A famous stock market pundit uses the phrase: “Stocks trading is dead”.
This statement is in reference to the increased adoption of Options Trading by the masses.
Thus proving that there more and more opportunities to make money trading Options.
The remaining question for you as a retail trader is how to go about getting your share of money trading Options ?
Can you make money trading options
Many retail traders have taken to stock markets recently due to the economic constraints.
Option trading provides this unique advantage that it does not requires a great deal of capital like trading stocks.
Most stocks have recently became quite expensive as the overall market rallied in 2021 and continued setting higher All Time Highs.
With the stocks getting too high to buy for most retail traders, options trading become the default way to start investing in the stock market.
We know that options derive their value from the movement of the stocks.
Therefore, if the stocks are moving higher and higher, there is a corresponding rise in options though this relationship is affected by time decay.
It is easy to make money trading options
In case you do not know by now, allow me to start with this chilling statistics.
Only a small percentage – less than 5% – of Options trader make money consistently trading options.
This means that if it was easy to make money trading options, the number of successful traders would be much higher.
Which begs the question: why do many keep trying ?
Or even further, should retail traders persist in trying to make a living trading Options ?
Based on my interaction with an increasing number of traders, I can tell you that it is very possible to be part of the Top 5% who consistently make money trading options.
The best way to find out if you achieve a goal is by trying it.
In the case of options trading, it is even more important to try it the right way.
Hence, we are going to scrutinize some of the reasons that make it difficult for most traders to succeed.
Why Do Most People Lose Money Trading Options
Simply having the wrong approach to this profession is by far the number one reason for failure.
Notice I said profession on purpose.
Trading Options for living is not a hobby you would engage to in your spare time.
Rather, just like in many professions out there, you will need to invest the time, energy and finance to acquire the needed skills.
Invest in Yourself
Those three attributes alone will be a snare for a great deal of retail traders.
Let’s talk about the financial aspect here because the other two are really a function of your individual motivation.
Medical, law school and engineering students spend a great deal of money on their education.
Because they know that at the end of it, they will acquire a knowledge to set them up for life.
Here is my question to you: why will trading the stock market in general and options particularly be any different ?
Did you know that you can as much money trading options as any one of the above mentioned professionals ?
Invest in Your Education
My best advice for you who is looking to take on making a living by trading options is to invest in your education.
This will be the foundation you need to be set for life.
I do not need to remind you of the lifestyle trading options provide.
A great deal of that is conveyed through social media nowadays.
Yet vey little is said about the commitments needed to get to that goal.
This could be finances or time you need to set aside to prepare yourself the right way.
Beware of Beginners Luck
If you are a beginner in Options trading, I am pretty sure you have asked yourself or some the following question.
How long does it take to make money ?
I can answer that one for you quite easily.
How about one day. All it takes is One trade.
I remember this trader from my YouTube channel.
He discovered FlowAlgo on my channel which led him to this very blog.
The new trader then read a review of an AMZN trade we made money trading options after Earnings.
He could not resist the temptation of trading AMZN stock before Earnings despite our recommendation.
That trade ended up giving him of $10,000 of profits on just 2 contracts.
A few weeks later, he wrote to me again stating the initial big win was the worst thing that could have happened to him.
Because that “prevented” him from first learning the proper way to go about making money trading Options Earnings Strategy.
The point I want to make is that many beginners traders focus on the wrong method.
The wrong approach will ultimately lead to failure.
Instead, focus on knowledge first and foremsot.
Because knowledge triggers awareness.
Awareness spotlights opportunity.
Opportunity engaged with preparation creates desired results.
How To Make Money Trading Options in 2021 and Beyond
Day and Swing Trading Options can be very profitable following the right approach.
The challenge is that most retail traders lack the required skills needed to become consistently successful.
The operative word in the above sentence is : consistent.
Anybody can pull a good trade now and then.
However, that is not the desired result when looking to make a living trading options.
Learn The Basics of Option trading
In getting to your objective, you will need to invest time, energy and maybe money.
Nowadays, a great deal of knowledge can be acuired for free online.
YouTube has because the best source of knowledge no matter the topic.
Traders have come to me and testify how much they have been able to learn from my YouTube videos.
They have been able to apply that information to make money trading options.
As a result, they felt the need to learn even more by subscribing to our Education Service where we offer unlimited hands on coaching.
Where to Find good Options Trading Classes
In the era of the pandemic, online interaction has become even more prevalent than before.
Traders from all over the world can access knowledge from anywhere through the magic of Search engines.
Successfultradings.com has seen traders come in from Singapore, Europe, Africa and Asia .
A simple internet search nowadays can reveal can lead to the right information in no time.
There is a great deal of resources out there to get you started.
This very blog is a good place to start if you do not mind me saying so.
When I first started many years ago, I simply went to Investopedia to learn the definition of basic option concept.
Getting the Right Tools: Platform | Books | Mentor
After my initial education from the internet, I read books.
Not such much the technical ones but mostly about the psychology of trading.
To date, the best book about option trading I can recommend you is Martin Schwartz Best seller: Pit Bull: Lessons from Wall Street’s Champion Day Trader.
Through that book, I learned the importance of having a mentor.
Why Do You Need A Mentor ?
This person could be a hands-on mentor.
You can simply contact them and explain that you are in need of someone to show you the ropes.
Alternatively, it could be a close friend who is or experienced trading options or the stock market.
The purpose is to have someone you can discuss about strategies or anything that would lead to your success as a permanent option trader.
Choosing Your Trading Platform
Choosing your option trading platform is something you should not take lightly.
There are many choices nowadays depending on what part of the world you are trading from.
Should you happen to be in the US, the best choice is certainly among these Top US Trading platforms.
I have even gone ahead and narrowed in down recently to these two compared in the video below.
The reason is because you do not want your choice of broker to become the reason why you CANNOT trade a specific strategy.
How To Find Stocks to Day Trade
Most day traders rely on a scanner to find stock to trade daily.
From our the scanners that I know, Finviz.com is the best palce to start.
How so ?
It is very intuitive and easy to use.
But above all, Finviz scanners allow you to quickly chart multiple charts.
You can easily perform technical analysis and identify opportunities to trade options on.
Furthermore, should you be into penny stocks trading, this article teaches you how to use Finviz for Penny stocks.
Also, check out our videos series on Finviz use cases on how to increase your ability to use it in your option trading journey.
Develop Your Own Option Trading Strategy
Your next big mission in trading options for living is to develop your own strategy or strategies.
And then stick to them.
Which means that you will have to test them over all markets conditions (bullish , bearish).
Only after that time evaluation will you be able to assess whether or not they are worth keeping.
In case it is taking you too much time to create your own option trading strategy(ies), check to see if you can use an already existing one.
Check with your mentor to see if he/she can recommend one.
Discipline / Psychology / Managing your Emotions in Wins and Losses
I see way too many times beginner and experienced traders alike with no clear strategy.
How can you expect to make money trading options if you do not have a consistent way of doing so ?
That means that you have no ideas where and when your wins will be coming from .
The situation you want to find yourself in trading options for a living is that each and everyday, you know exactly what is your likelihood of making money.
That comes from trading already back-tested strategy over time.
Psychology of Trading Options For a Living
It is widely believed that if we repeat a task without the expected outcome that leads to doom.
Failure in options trading is often linked to our inability to recognize that we do not have the right process or approach.
Instead of stopping , traders sometimes continue making the same mistakes until the reach the ppoint of no return.
Typically, you will run out of money or even worse you can get into some very unhealthy emotional nd mental states.
All these are avoidable with the right approach to options trading.
How To Avoid Emotional Roller coasters in Options Trading
The huge volatility in options trading makes it that traders are subjected to a wide range of emotions.
The thrill of victory and the agony of defeat when trying to make money trading options is a very thin line.
Especially when you partake on not so sound strategies.
I can think of those related to news.
You must know that the stock market does not always interpret the news in a manner you and me may do.
This past week, a very bad April Non Farm Payroll job report came in.
Guess what happened ?
The stock market went to ALL time high : SPY traded all the way to 422+ despite the obvious bad economic news.
Another situation you ought to avoid is the “standard” interpretation of Earnings.
Stocks do no go up because companies beat Earnings.
Or vice versa.
The market is always forward looking and thus the guidance is what the market often focus on.
Even then, it is very difficult for you and me to predict how AAPL stock will trade after each quarter Earnings beat or miss.
Consequently, any options strategies centered around Earnings must take these uncertainty into account.
Otherwise, you may be celebrating one minute after market close on your stock being up 5% jsut to wake up in the morning to see the same stock down -2%.
I do no not know about you but most traders do not react well from the thought of making money one day just to find out you are actually losing a few hours later.
Do’s and Don’t of Successful Options Trading
The secret in how to make money trading options is to achieve consistency in winning.
There are quite a few winning habits that you will need.
We devoted a full discussion to that in this 7 Winnings habits article.
On the other hand, we often share the most common mistakes we have seen options traders make.
These series of video will kindly take you through them so that you are armed with the necessary knowledge to avoid such snares.
Source of Option Trading Capital
One of the above mistakes is the source of your capital for trading.
It is not possible for someone in a non stable emotional state to make moeny trading options.
Because your emotions will start dictating the decisions you will need to make.
For instance, when to get out of stay in a trade if you are trading with money that is meant for a different use ?
I call this Sacred Money.
And for whatever reason, Sacred money is Scared Money and we all know by now that Scared Money is Cursed destined to be lost.
Solution: Do not Trade Options with Sacred Money.
Do instead find a different way to raise money to trade with.
Do not let one stock derail your options trading
One of the other way trader do not make money trading options is through their emotional attachment to one stock.
Let’s say you ahve this one stock that may have given you some profit in the past.
Or you relate emotionally to the company .
Whatever the reason may be.
There is a high risk that your judgment will be altered by this emotional tie you have to that stock.
This will translate in mostly trading one side – mainly buying calls- for that stock.
If you are not careful, before you can realize it you would lose a great deal trading options on that stock alone.
Do not let this happen.
Solution: Keep yourself in check by answering the following question below.
What is your Favorite stock ? Trick question !
During my 1 vs 1 Coaching with traders, I often like to ask : what is your favorite stock to trade ?
This question enables me to bring the topic of being enamoured with one single stock.
The market has thousand of stocks you can make moeny trading options with.
Why settle with just one of them ?
the problem is not so much focus on just that one.
The issue is the heavy bias traders develop with a specific stock thus clouding their judgement and ability to trade the said stock rationally.
This means that you favorite does not have a GOD given mandate to only go up.
You will need an open mind to trade it according the its chart.
Not solely based on you emotional ties to that sotck.
Hence, the best Answer to the above questions is simply.
To make money trading options, your favorite stock is whichever stock is moving the fastest on that day or that week !
How To Make Money with Options ?
How Do Market Makers Make Money
In the game of options trading, the advantage is clearly with the market makers.
Why does this mean ?
We need first to understand how do market makers make moeny.
Market Makers Charge Fees
For every trade yo u and I take, market makers make money by charging us a small fees to buy and sell options.
In the United States, most brokers charge between 50cents and 65 cents per contract to buy and trade options.
eOption advertise a smaller amount about10 cents but you need to read the small prints.
Robinhood and and Webull charge $0 but the both come with restrictions on how and when you can trade options.
The second way market makers make money is through the Ask vs . bid spread.
Let’s say you put in a limit order to buy a contract of AAPL at 50 cents.
You broker who is a market maker will quick search for the cheapest price on the bigger Exchange.
This is done with computers so this search can take less than a few seconds.
AAPL is a very liquid stock so they may just find that contract cheaper by 2 to 5 cents.
Let’s assume 47 cents.
Well, they will buy that contract at 47 cents through the bigger Exchange -Citadel is a company hosting these transactions – then tturn around sell it to you for 50 cents or sometime less and pocket the difference of 3 cents.
You may say 3 cents is not that much but scale this up for millions of trades.
This is a big revenue source for the market makers.
Market Makers Trade Against You and Me
The third way market makers make money trading options is by selling options directly that expire worthless.
You can do so as well assuming you are in the following situation.
Options Trading for Income
In order to make money trading options for steady income , you need to own shares of a given stock.
The minimum number of shares you need is 100 shares.
Because, that is how many shares one contract control.
If so, you can then sell calls against your shares.
1000 shares of AAPL for instance will allow you to write 10 call contracts.
Let’s say AAPL is trading at $130.
You pick and Expiration int he future.
One, Two or Three weeks out depending on how much income you want to get.
You get to pick a strike price as well.
The further out of the current price is your strike price, the less money you will potentially make.
It is good to understand that the bigger the strike price, they more likely the option will expire worthless.
Selling vs Buying Options
Therefore, the combination of the expiration date and strike price will determine the maximum amount you can make out of this option trade.
Your objective as a market maker if you pick a strike of $135 is to keep as much as possible of the premium paid to you initially.
You can repeat this process as much as you want to start building a weekly/month recurring income from options trading.
The limitation of this option trading strategy for income is simply the amount of money you cam make it fixed.
Obviously, you need to possess those shares
Option Profit Calculation
How to calculate your option profit if you are a market maker ?
The maximum gain is the premium paid to you should the stock not reach your choosen strike price at expiry.
On the other hand, if the price reaches the strike price of $135 before or at expiration, you are obligated to sell your AAPL stocks for the agreed price of $135.
This process is done through the exercise of the option by the buyer if he/she chooses to do so.
In this second outcome, you will loose your shares but you get to $5 (135-130) for each one of your share.
Power Etrade TradeLab for Option Calculation
For non option writer, there are tools to help you simulate potential profit.
Most of them provide a snapshot at Expiration for your option position.
Even a platform such as TradeUI has recently came up with an Option Price Estimator.
The best of such method for calculating options profit is the TradeLab from Power Etrade.
In there, you will learn how to calculate option profit with a simulator for any date before the expiration day.
It is a very intuitive graphical interface where you can change the price of the underlying stock and the date simultaneously.
Here is the video depicting the feature of TradeLab of Power Etrade.
The Power of Puts and Calls
By now, we have showed you how you can use calls and Puts to make money in Options trading.
The big advantage of calls and puts trading over stocks is the low cost of these deriatives.
Which makes them particularly attractive for beginners traders.
In my Discord channel, our AI trade Alerts system usually provide between 15 and 18 stocks for us to trade options from.
I am able t use empirical data to confidently and consistently trade Out of the money options.
In average, the cost to trade the entire list should we elect to is less than $2000.
Average contract price is typically 50 cents or less.
These AI picked stocks have a very high probability of moving.
Thus we have been able to consistently make money trading weekly options as depicted in the above example.
Which Options Strategies to Use to Trade Options
Making money trading options requires consistent strategies that are proven over time.
As such it is not advisable to risk a large amount of money as some traders do on the first so-called guru who recommend to buy Calls.
Have you noticed how it is much easier for traders to buy calls than puts ?
We have this on-going joke in our Discord room on how I feel dirty when I make money trading puts options.
That is my reason for taking so many showers each day.
More seriously, any strategy that focuses on simply calls or puts is cannot sustain the test of different market conditions.
Here is a non exhaustive list of options trading strategies we have been using to consistently make money trading options
Successful Tradings AI Trade Alerts
This option trading strategy is our AI Trade Alert System.
All you need to know is in the average move per trade in the chart below.
Because thee underlying stocks are moving 8% in average per week, the resulting profit on Options dwarf some of the return you may have been used to seeing.
Best Option Strategy for Earnings | Gangsta Strategy
All I share with you about this strategy is that we take advantage of gaping stocks.
This is done is a very safe so that the option trader does not have to worry about the direction of the trade.
All that is required to make money trading options with our Gang$ta strategy is for the gaping stock to be volatile once the market open in either direction.
You will further enjoy this option trade strategy during Earnings seasons because of the so many opportunities.
How to Make Money Trading SPY for Profit
If I were to close this discussion without mentioning How to Make Money trading SPY weekly options, that will really be a shame.
We have been demonstrating the consistency of this option strategy for quite a while now and continue to deliver great profit.
Here is the video that shows step-by-step how you too can start making money trading SPY Options for a living.
We provided an in-depth discussion on how to make money trading Options the right way in 2021 and beyond.
May you be a beginner trader or an experienced one looking to take your trading to the NExt Level, I strongly encourage you to check out our 10-Baggers Trading System.