Who is really making a living trading options??

Quote from nnfx:

Ok, lets talk about what really gives u an edge in trading options

1) i understand all those 20-25 strategies and i paper traded them but overall i was at breakeven and it was just gambling becouse without knowing where the stock will go or whether the certain commodity will rise or fall this is just gambling.

2) Options are fairly priced so that neither sellers or buyers are in initial advantage. I understand this concept.

So who in here is actually making money trading options and how do you guys do it? I know some of you dont want to share your secret methods ...but for those of you who are kind to give some advice i have simple question

-->>> what kind of strategy do you use and what excatly gives you and EDGE? (is it finding some mispricing in volatility or sth else? trading the earnings?)
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well, hopefully you have found your answer as to who is actually making money and i will add consistantly over long periods of time in the replies and views your post has gottten. very very few is the obvious answer and if you think you can beat the odds then go for it.

traders do not like to face the fact that they cannot and will never make a living trading options over the long term but point out their winners and forget about their losers 'cause there is always the next options expiration cycle or the next trade that will bring them back to even. sounds like gambling? well, it is(!) as you mentioned in your op. sorry to tell you this straight up but there you go.

don't expect someone to come out and show you their magical formula or strategy because it simply does not exist. you have to trade in the right direction and forecast volatility correctly. i've noticed some very large egos on this board and how quickly someone with an honest answer and honest posts is ridiculed.

good luck,
dc
 
Quote from daveyc:

well, hopefully you have found your answer as to who is actually making money and i will add consistantly over long periods of time in the replies and views your post has gottten. very very few is the obvious answer and if you think you can beat the odds then go for it.

traders do not like to face the fact that they cannot and will never make a living trading options over the long term but point out their winners and forget about their losers 'cause there is always the next options expiration cycle or the next trade that will bring them back to even. sounds like gambling? well, it is(!) as you mentioned in your op. sorry to tell you this straight up but there you go.

don't expect someone to come out and show you their magical formula or strategy because it simply does not exist. you have to trade in the right direction and forecast volatility correctly. i've noticed some very large egos on this board and how quickly someone with an honest answer and honest posts is ridiculed.

good luck,
dc
More...

Realistic post but too much pessimism there. It should be said that if you can forecast direction and know how to play volatility then that is the magic formula. Its not simple offcourse, thats why only a few can do it in my opinion.
 
I make money consistently with put and call credit spreads.
You need to have a backtested entry and exit setups that have high probability. Then to stick to your system even if you have a bad streak. Backtesting gives you confidence in your system so you can stick to your plan when volatility hurt your position.
If you don't backtest you'll nave no confidence thus no success.
 
You can use options to trade the directions of:

1. underlying;
2. vol of underlying;
3. spread of vol.

It gives you more dimensions to bet on if you have an edge on predicting the directions. Unfortunately 2, especially 3, requires lots of modeling and quant skills, which is a bit beyond technical analysis. This is due to the fact that options of different strikes and maturity are closely linked to the underlying.

If you just use option to enhance your leverage to trade 1, then it is difficult to be consistently profitable. The underlying tends to have better liquidity and is less costly to trade in terms of commission and b/o spread. I feel in general it is easier to directionally trade vol than to trade the underlying.

njrookie
 
Quote from njrookie:

You can use options to trade the directions of:

1. underlying;
2. vol of underlying;
3. spread of vol.

It gives you more dimensions to bet on if you have an edge on predicting the directions. Unfortunately 2, especially 3, requires lots of modeling and quant skills, which is a bit beyond technical analysis. This is due to the fact that options of different strikes and maturity are closely linked to the underlying.

If you just use option to enhance your leverage to trade 1, then it is difficult to be consistently profitable. The underlying tends to have better liquidity and is less costly to trade in terms of commission and b/o spread. I feel in general it is easier to directionally trade vol than to trade the underlying.

njrookie
More...


.....:cool: ......
 
Quote from nnfx:

Ok, lets talk about what really gives u an edge in trading options

1) i understand all those 20-25 strategies
2) Options are fairly priced so that neither sellers or buyers are in initial advantage. I understand this concept.

So who in here is actually making money trading options and how do you guys do it? I know some of you dont want to share your secret methods ...but for those of you who are kind to give some advice i have simple question

-->>> what kind of strategy do you use and what excatly gives you and EDGE? (is it finding some mispricing in volatility or sth else? trading the earnings?)
More...

What time frame are you talking about when you say trading? I know people day trade using options for the additional leverage. I can't figure how that is profitable as you are always out the premium at the start.

I have one strategy that works well for me and I don't mind sharing since I'm sure there are others that figured it before me. I consider it a Swing Trade not Day Trading because of the time frames...

Pick a stock that you are confidant of going up. One of mine was AAPL. Instead of buying it, write PUTs for the next week. I wouldnd't do this next week because of AAPL earnings coming out unless you are really bullish on it. Let's say we're bullish or ignore earnings... I would sell 5 of next weeks 400 (11Oct22 P 400) for say $4.50. Now if Apple stays above $400 at the end of next week, you keep the $2250. If it drops, you buy 500 shares of AAPL for $395.50 ($400 strike less the $4.50 premium)

Now remember, we're bullish AAPL, so we're fine with getting put the stock. Now write Covered Calls based on how bullish you are. I'm usually trying to stay out of the UL so I would write the following week AAPL 11Oct28 C 400 for let's say $4 That week isn't out yet so we can't check the price, but you can follow this on paper next week to see how it turns out.
If it goes back up over $400 then you get $404 for your stock ($400 strike plus the $4.00 premium)
So in 2 weeks you got $8.50 a share or $4250 for this trade.

The downside: If after earnings AAPL goes to $350 a share. Well I have done this more than once. With NFLX I had to bite the bullet & take a massive loss. On GOOG and on AAPL it has happened and since I am long term bullish on those, I held them and wrote CCs for what I could get until they came back. (which they both are profitable again for me)

My EDGE and another downside to most new people is that I have the capital & margin to get assigned stocks like GOOG & AAPL and then sit on them for possibly months writting CCs until they come back and get called away.
It is a risky way to trade and I don't recommend it unless you have the capital to back it. You also still have to call the direction of the underlying. I just find this more profitable than just buying the stocks. You also need to have enough funds to be making money on other strategies if and when you get caught holding one of these.
 
The O/P of this thread asks the question "Who is Really making a living trading options." Answer: Lots of folks.

Now if the question was who is "Really making a living trading stocks, bonds, futures and commodities?" Then the answer would be Very Few -- perhaps less than 10% of those who try to make a consistent living doing it.

Day-traders who trade say the e mini's are strictly trading by making an assumption as to the momentum and direction of the future they are trading -- and using a stop as protection from an excessive loss. If they are using a stop of say 2 points then what should their target be for profit? Oftentimes their directional choice maybe correct but they are stopped out before the market does move in the direction they chose. Oh, you may argue that the scalpers maybe using 2 tick stops and looking for a first target of 2 ticks profit. All sounds plausible but few Really make money consistently doing it. Evidence galore from brokers who churn the traders who are trying to scalp the e minis -- average life of the account is less than 6 months.

Once understood and used with a sound strategic plan options are Much more likely to produce consistent profits with much less risk. I do it consistently and make a nice monthly income with a 5 figure account.

Yes, the learning curve to become a profitable options trader is somewhat daunting but anyone who knows the rudiments of trading and basic chart reading can learn to profitably trade options in as little as a month with proper guidance from a mentor, book, internet or course. The problem is focus -- finding what to learn and what is superfluous to learn for the purpose of making money.

So put the edge in your favor -- learn to trade options. Instead of trading equities or futures directionally, where at best, statistics show you really only have about a coin flip of being right -- find a true edge by learning to profitably trade options.

Be careful on how you go about learning. I found that buying courses is the least effective way to learn.

Hope you don't give up on your quest to become a profitable options trader. There is nothing like having a stress-free consistent income that provides you finally with the financial freedom that made you turn to trading in the first place.

Just my 2cents worth...
 
Quote from ClimbingMel:

What time frame are you talking about when you say trading? I know people day trade using options for the additional leverage. I can't figure how that is profitable as you are always out the premium at the start.

I have one strategy that works well for me and I don't mind sharing since I'm sure there are others that figured it before me. I consider it a Swing Trade not Day Trading because of the time frames...

Pick a stock that you are confidant of going up. One of mine was AAPL. Instead of buying it, write PUTs for the next week. I wouldnd't do this next week because of AAPL earnings coming out unless you are really bullish on it. Let's say we're bullish or ignore earnings... I would sell 5 of next weeks 400 (11Oct22 P 400) for say $4.50. Now if Apple stays above $400 at the end of next week, you keep the $2250. If it drops, you buy 500 shares of AAPL for $395.50 ($400 strike less the $4.50 premium)

Now remember, we're bullish AAPL, so we're fine with getting put the stock. Now write Covered Calls based on how bullish you are. I'm usually trying to stay out of the UL so I would write the following week AAPL 11Oct28 C 400 for let's say $4 That week isn't out yet so we can't check the price, but you can follow this on paper next week to see how it turns out.
If it goes back up over $400 then you get $404 for your stock ($400 strike plus the $4.00 premium)
So in 2 weeks you got $8.50 a share or $4250 for this trade.

The downside: If after earnings AAPL goes to $350 a share. Well I have done this more than once. With NFLX I had to bite the bullet & take a massive loss. On GOOG and on AAPL it has happened and since I am long term bullish on those, I held them and wrote CCs for what I could get until they came back. (which they both are profitable again for me)

My EDGE and another downside to most new people is that I have the capital & margin to get assigned stocks like GOOG & AAPL and then sit on them for possibly months writting CCs until they come back and get called away.
It is a risky way to trade and I don't recommend it unless you have the capital to back it. You also still have to call the direction of the underlying. I just find this more profitable than just buying the stocks. You also need to have enough funds to be making money on other strategies if and when you get caught holding one of these.
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Mel, that does take a lot of capital, but certainly has worked on APPL for years.

I have been doing LNG covered calls, as it seems to hold huge IV months on end, and is cheap (closer to zero, cheaper downside). Selling naked puts on it would be the best way to start.

Right now you can buy it for 6.03 and sell Nov 6C for .80 110% IV, if that happened each month and it sat still (definatly will not) that is .80 x12 or $960 option Preminum per year on $603 investment/risk, or about 150% interest per year. That is CCs, NPs even higher.

I would suggest taking small position, and if stock drops, sell a few more Puts or buy more stock and sell calls, thus cost averaging.

Unless LNG goes out of biz, hard not to make $ with 150% interest per year.

For those without you level of cash, they can play the same game with higher potetiall ROI too.

I have been doing about 4 months and alead just a little, but mkt crash interfered, as soon as next upleg it will make a lot and if I had just bot stock would be down 60% or so at its lows last week.

By posting this will wreck the IV ;-)

Cheers
 
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