Only the rich make money trading options, right?
But, how much money do you need to sell options and be successful?
David Jaffee of BestStockStrategy.com has proven that you can make money selling options with a smaller account.
Small accounts with less than $10,000 or $15,000 can make a profit with options trading.
Even if your account has a minimum of $2,000 you can expect to make about 35% - 40% each year trading options.
Yes, it's true that you will not turn your $2,000 account into a million dollars overnight.
But, with discipline, patience, and the right trading strategy, you can steadily earn a profit.
Keep reading for David Jaffee’s top five tips to trade with a smaller account.
Limit the Amount of Information You Consume
First, you have to avoid information overload.
When you look for articles or videos about options trading, you will find a lot of misinformation.
Too often, people tend to look for articles that support their existing ideas. This confirmation bias does not provide you with accurate information on trading options.
You may feel affirmed that the position you entered was worthwhile, but that feeling will disappear when you start to lose money.
Consuming too much information is a waste of time, and it will only stress you out.
David Jaffee makes more than $1 million each year trading options, and he does not watch the news or read any articles on his positions.
By limiting the amount of information you consume, you can save yourself both money and time.
Craft Your Watch List
So, how do you make money trading options if you are not staying up to date with the latest news?
David Jaffee recommends crafting a watch list and trading a maximum of two to four securities.
Trading Facebook, an industry leader like PayPal, or Mastercard are great places to start if you are trading options with a small account.
You can even trade just one underlying stock and get comfortable with it to make the most of your smaller account trading options (read options trading tips).
Trading too many underlyings at once burdens you with too much responsibility, and you could end up losing money.
David Jaffee has a multi-million-dollar options trading account and only has trades on five securities at a time.
Learn the Trading Ranges of Your Stocks
Limiting your securities enables you to learn and closely monitor the trading ranges of your stocks.
Because you are only focusing on a few securities, you can quickly get a feel for the low and high-end ranges.
David Jaffee can easily rattle off the trading ranges and current prices of the securities on his watch list because he follows them so closely.
When you are comfortable with the trading ranges of your stocks, you can easily recognize when they reach the lower end.
This options trading strategy minimizes your risk while maximizing your probability of profit.
Get Comfortable Trading Naked Options
David Jaffee believes that trading naked options is a better strategy than vertical credit spreads (especially when the VIX is trading over 20).
While some may disagree, David Jaffee has found that those individuals tend to not be profitable traders.
There are very few situations where being long stock is better than selling naked puts.
Selling naked options can mitigate your risk when you sell far OTM options.
When the VIX is high, you can maximize the credit received when compared with trading spreads.
Trading naked options also stops you from from trading too many contracts because naked options require more buying power.
When people trade verticals, there is not a substantial buying power reduction and they may end up trading way too many contracts.
When selling naked options you do not have to fight the inherent greed most human beings experience.
Also, naked options are easier to manage and roll a position than vertical options.
If you win 95% of your trades by selling naked options, you can manage the remaining 5% more easily.
You can learn how to successfully trade options because David Jaffee's online option trading course can help investors become profitable traders.
Become Extremely Disciplined When Selling Options
If you are blocking out the news, focusing on your watch list, and selling naked options, you can earn a profit each year by trading options with a small account.
However, you have to continue to be disciplined when trading.
It is easy to get swept up and enter trades when you shouldn’t.
If you know the trading range of a specific stock, like Facebook, and it blows past its high range and starts trading up every single day, you can just let it go - or fade the rallies by selling call options.
During a euphoric uptrend, you can sell calls and wait for your existing put positions to expire worthless – or you can close out your existing put positions early.
If you want to consistently make money by trading options then you have to be extremely disciplined to earn money trading options.
You can also read reviews of David Jaffee and BestStockStrategy.com