If you are looking for a way to make money without investing too much time and money upfront, consider options trading.
By learning how to make money with options trading, you can create a consistent income without leaving your home.
David Jaffee of BestStockStrategy.com has taught more than 1,500 students how to win up to 98% of their trades, and he readily shares his experience and insights with new and advanced traders.
With the right strategy, you can maximize your probability of profit while minimizing your risk.
Keep reading to learn how to make money with options trading by selling option premium.
Can you Make Money Trading Options?
Options trading has its fair share of skeptics, and some people are wary of “playing the stock market.”
In reality, options trading can be less risky than buying and selling stocks. It can also have a higher probability of profit when done correctly.
If you are just starting out with options trading, you cannot expect to make a million dollars in a year.
Instead, it’s best to target a monthly return of 3% while trading conservatively.
David Jaffee teaches his students to become profitable traders by selling option premium.
Selling option premium allows an options trader to act like an insurance company by selling insurance and collecting premium.
Even so, it's very important to buy options at certain times to protect your portfolio from volatility.
What percentage of option traders make money?
Options trading can put the probability of profit in their favor.
Whether an options trader makes money depends on their strategy and risk management.
It is possible to win up to 98% of your trades and still lose money when selling options.
However, losing traders almost always are trading too large and take too much risk.
Selling options is oftentimes less risky than buying stocks.
For example, you can sell an OTM put option and have a cost basis significantly less than the current market price of the underlying stock (meaning that you can acquire the stock at a large discount to the current market price).
However, if you trade too many contracts, then your broker will force you to close out the position for a loss during a market correction.
When a person is forced to close out the position, they usually watch that same position rebound, for a profit, just a few weeks later.
Unfortunately, if the trader was trading too large, they are stuck with a realized loss, whereas others, who were trading more conservatively, will likely have made money from that same trade.
Best Options Trading Advice for Beginners
New options traders may be afraid to invest their own money or spend a considerable amount of time learning about trading options.
However, if you are serious about trading, you can learn how to make money with options trading relatively quickly.
Watch the video below to learn about options trading for beginners:
It is important for options trading beginners to learn the basics of trading, including common terminology and strategies.
It is also worth noting that the truly successful traders understand the importance of patience and discipline.
Options are leveraged derivatives and leverage cuts both ways, meaning it helps you make, and lose, money.
There is a lot of information available online for beginner options traders, and it is crucial to cut through the noise and learn the best options trading strategy.
Calls vs. Puts
Calls and puts are two terms you will hear very often when it comes to options trading.
With a call option, the option buyer earns a profit if the underlying asset goes above the strike price (plus the premium paid) before the option expiration date.
The call option seller collects the premium for writing the option and earns a profit if the underlying stock does not expire above the strike price (plus the premium received).
For put options, the buyer earns a profit, in general, if the price of the underlying stock falls below the strike price.
The option seller collects the premium and keeps it, regardless of the outcome of the options contract. Generally speaking, put sellers will profit if the underlying stock stays above the strike price.
Traders can sell a put option if they believe a stock is oversold, and they can sell a call option if they believe a stock is overbought.
Buying vs. Selling Options
There is some debate around whether buying or selling options is best.
David Jaffee encourages his students to sell option premium, he believes it’s the best options trading strategy because it offers a high probability of profit.
However, as stated before, there are times when it's valuable to buy options to protect your portfolio.
When selling option premium, you can better manage your risk and earn a consistent profit.
Plus, since actual volatility is almost always less than expected volatility, you’re able to sell overpriced risk while also selling a depreciating asset that can earn money regardless of the market direction.
Buying put options is important during certain times to reduce portfolio volatility.
Buying call options is not recommended though because you'll have to pay the time premium.
Minimizing Risk When Trading Options
Options traders must always be mindful of risk and have a disciplined risk management strategy.
David Jaffee educates people about options trading, teaching them to focus on a small watchlist of stocks instead of being swayed by short-lived trends and sensationalized news.
It is also important to avoid trading too large.
Winning almost every trade can provide a false sense of security, causing people to trade too many contracts.
Without a safety net in place, these traders can run out of buying power when the market corrects and be forced to close their positions for a loss.
Instead of trading too large or getting greedy, David Jaffee recommends that traders strive for 3% returns per month.
Learn How to Make Money with Options Trading
If you want to learn how to make money trading options, you have to learn the best options trading strategy.
Learning how to sell option premium can allow you to better manage risk so that you can win up to 98% of your trades.
David Jaffee’s online options trading course provides a step-by-step guide for selling option premium and it’s perfect for beginners through advanced traders.
Visit BestStockStrategy.com to learn more and receive $400 worth of free options trading training materials.
Frequently Asked Questions (FAQs)
How to make money with options trading?
Selling out of the money put options on market leading companies and then buying options during certain times is the best way to be consistently profitable.
Can you make more with options trading?
Yes, by selling options on market leading stocks, and by not trading too large, it's quite easy to make money.
You can also take ownership of stocks that are oversold and participate in the upside of the stock.
Even so, it's vital to buy options during periods of complacency to protect your portfolio.
How much do options traders make in a year?
It's best to target a return of 3% a month.
Targeting higher returns comes with greater risk and greater portfolio volatility.
Will I lose money by trading options?
Options are leveraged products. As a result, traders can earn, and lose, a lot of money.
When trading options, it's extremely important to minimize drawdowns and not trade too large.