Wealthy Option Traders

[mikedks]

first post here, thought I'd throw in my 2c.

Worked as a mm in a dpm on the cboe for about 10 years, saw a ton of experienced guys come and go. Don't know of any who were able to go out on their own, trade own $, and hit a homerun. Too risky.
Even while trading in the dpm, making big money was difficult. Mostly had to be positioned correctly for the big move, rest of the time just traded delta-neutral for edge, then scalp stock all day paying for decay.

Now, option trading before 1999ish, there was money to be made. Single lists, no electronic trading, wide markets.

 

[blackjack007]

Quote from mikedks:


Now, option trading before 1999ish, there was money to be made. Single lists, no electronic trading, wide markets.

i started around 1998 and i'd say it's easier to make money today due to the higher volume and greater availability of products. if you had a capital base of a few million, you would have run into liquidity issues back in the late 90s. today there's enough volume and products to spread your trading around

 

[NoDoji]

Quote from CandleStick77:

I am posting this thread to find out what option traders here have made alot of money. I would like to keep the negative people out of the thread and here what the successful people have to say. If your out there and you have been making consistent high profit gains. Please post

I believe Neke started with around $5000 in 2005 (?) and traded mainly options:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=150396&perpage=6&pagenumber=143

He's grown it to $500K so far, which I believe a good trader could retire on.

 

[KINGOFSHORTS]

Quote from blackjack007:

i started around 1998 and i'd say it's easier to make money today due to the higher volume and greater availability of products. if you had a capital base of a few million, you would have run into liquidity issues back in the late 90s. today there's enough volume and products to spread your trading around

I agree. If you cannot make money in the options market now you really should think of sticking just to equities.

Even 2010 is starting out to be a nice year again

 

[jwcapital]

FWIW, I make my living trading futures options on the S&P 500 emini. I have been doing this for over 5 years. I do not work any other outside job. For me, wealth is meeting my monthly expenses and having something left over to spend on fun things and to keep as a reserve in case of losses (and losses do occur). Therefore, I have to gear my trading toward at least meeting my monthly expenses. In order for me to do this, I keep 50K in my trading account at all times. The more you have to trade, the more you can make each month. $5k is inadequate if that is all the money for have to make a living and meet monthly expenses. In addition, your management of your trades is extremely different if your account has 5K vs 50k. If I had an investor approach, I would at least start with $25K. Since I wouldn't need this money, I would reinvest it (keep it in my account) and increase my income potential based on the amounts reinvested. As far as trading technique, the approach needs to allow consistent returns--therefore I approach my trading like an insurance company--like someone already mentioned. I receive monthly premiums, and I hedge those premiums against adverse movement. This is exactly what insurance companies do. They take in premiums each month and to hedge against losses, they invest the premiums in dividend paying stock, real estate, etc (supposedly conservative investments, unlike AIG which invested its premiums in extremely risky investments).

 

[luckybastard]

I've been an option Market Maker in Amsterdam for a year (the year before they replaced the floor with computers), I now trade stocks.

Anyway, first of all, THE book every market maker has read is this one: http://www.amazon.com/Option-Volatility-Pricing-Strategies-Techniques/dp/155738486X Most firms use this book as the basis for teaching and you wont find any floor trader who hasn't read it.

Furthermore, to those pro traders, there's no difference between a put and a call. Hence, I personally think there are 2 camps: the amateurs, who buy/sell an option because they are bullish/bearish and the pro's, who buy an option because they think it is underpriced and sell anything that's overpriced. I guess I won't have to explain you which of these 2 camps makes the big money.

Hopefully this insight is usefull to you. And BTW, I guess I also dont have to explain you how extremely difficult it will be to defeat those pro's, with recent advancement in technologies, the amateur pretty much has 0 chance left of consistently making money in options, IMHO.

 

[luckybastard]

Or in other words: option trading used to be a game of knowledge, now it's a game of technology. And unless you have a very, very big IT budget, you won't win that game for sure.

 

[gkishot]

Quote from jwcapital:

FWIW, I make my living trading futures options on the S&P 500 emini. I have been doing this for over 5 years. I do not work any other outside job. For me, wealth is meeting my monthly expenses and having something left over to spend on fun things and to keep as a reserve in case of losses (and losses do occur). Therefore, I have to gear my trading toward at least meeting my monthly expenses. In order for me to do this, I keep 50K in my trading account at all times. The more you have to trade, the more you can make each month. $5k is inadequate if that is all the money for have to make a living and meet monthly expenses. In addition, your management of your trades is extremely different if your account has 5K vs 50k. If I had an investor approach, I would at least start with $25K. Since I wouldn't need this money, I would reinvest it (keep it in my account) and increase my income potential based on the amounts reinvested. As far as trading technique, the approach needs to allow consistent returns--therefore I approach my trading like an insurance company--like someone already mentioned. I receive monthly premiums, and I hedge those premiums against adverse movement. This is exactly what insurance companies do. They take in premiums each month and to hedge against losses, they invest the premiums in dividend paying stock, real estate, etc (supposedly conservative investments, unlike AIG which invested its premiums in extremely risky investments).

Just curious how many contracts do you trade with 50K?

 

[mikedks]

Quote from KINGOFSHORTS:

I agree. If you cannot make money in the options market now you really should think of sticking just to equities.

Even 2010 is starting out to be a nice year again

I don't disagree, technology and tight markets have given the little guy the opportunity to find and trade whatever he wants. Just need to go get it.

Me? been out of the game for several years and have recently broken out my copy of Natenberg to brush up. Just starting out with some buy-writes to prime the pump. Vix may be low, but there
are always plenty of stocks with pumped up IV calls looking to be whacked.

 

[KINGOFSHORTS]

Quote from mikedks:

I don't disagree, technology and tight markets have given the little guy the opportunity to find and trade whatever he wants. Just need to go get it.

Me? been out of the game for several years and have recently broken out my copy of Natenberg to brush up. Just starting out with some buy-writes to prime the pump. Vix may be low, but there
are always plenty of stocks with pumped up IV calls looking to be whacked.

Just be careful. Dont go around chasing IV. Sometimes it is better to sell lower IV with lower risk but profit than chase a higher profit but big risk of loss.

Imagine the folks who went short put LEH because they saw high IV

High IV is good if you determine ahead of time if the options are just in high demand and overpriced for the true volatility and risk is low enough. But usually you should have a real good understanding of the underlying and know the risks involved.

You do not have to swing at every pitch sometimes it pays to be patient and wait for that perfect pitch.

Anyhow good luck in your endeavor.