Do you want to learn options trading? I have summarized three hard truths you MUST know so that you will NOT be misled by all the rumors out there about option trading.
This is an options trading tutorial for beginner traders.
It is full of honest opinions from a legit options trader who has made over 20,000 trades and earns around $1 million a year.
Beware of FAKE gurus who do not show their results or use predatory marketing tactics to sell a garbage trading product!
I will never never compromise my integrity.
This is why I wrote this post to help you learn options trading.
I will teach you the three cold hard truth about trading options that you MUST know.
I know how you feel, but it is the truth.
Stop believing those fake gurus who tell you that you can earn 200% or more.
You will make around 30% - 70% depending on your options trading strategies.
You can try to make more money than that, but you will likely end up losing money.
Why? Because you are increasing the probability of losing trades.
There is also a high likelihood that your losses will offset your winners if you take too much risk and trade too many contracts.
The worst case scenario - you may lose more money than what you earned if you are too aggressive!
You need to manage your capital well with a small options account.
You will be forced to sell vertical credit spreads which will limit your profitability because you have to buy a lower price put (it will also reduce your risk though).
I am not a fan of selling vertical credit spreads and I talked more about that in my Robinhood investing post.
I definitely prefer trading and selling naked options because it is LESS risky than trading verticals.
Naked options use more buying power which inhibits you from trading too large.
Also, it's much easier to manage and roll when challenged (which may happen on 5% of your positions).
Even if you have a small account, selling option premium is the only way for retail traders to be consistently profitable.
As a result, it's better to establish good habits and earn ~40% on a small account than it is to adopt a bad strategy and lose money.
Many options trading for beginners strategies encourage traders to use vertical credit spreads. While I primarily trade naked options, I think that trading spreads is a decent options trading strategy, as long as you're disciplined.
Credit spreads permit better capital efficiency. However, I have seen many students trade too many contracts when selling credit spreads.
As a result, it's important to be disciplined.
Options Trading Strategies and Options Trading Example:
It's hard to roll / manage an option spread because you'll continuously have to buy the lower priced put option.
With spreads, your earnings expectations should be less.
You're maximum annual gains will be around ~30% if you have a small account (below $10,000 and trading mostly spreads).
You will also need to manage your buying power and redeploy your capital more efficiently.
Closing out your winning positions will help you reduce risk and maximize your gains.
Lastly, for smaller accounts, you need to be disciplined to choose your trades correctly.
Options Trading Example:
If you have an account size of less than $10,000, you should trade a maximum of 2-3 stocks at a time.
You can have open positions / trade stocks from Facebook and Boeing or any one of the following:
Do NOT have open positions in ~10 different securities at one time because it's hard to focus and pay attention with so many open positions.
Plus, if the market experiences an increase in volatility, you are going to get a margin call and you may be forced to close out those positions, and you will LOSE MONEY!
"You will lose more money than what you have earned if you are greedy."
Copy My Trades with Real-Time Trade Alerts
The truth is that when learning how to trade options, trading verticals are a lot more risky than trading naked options.
Primarily because people tend to trade too many contracts when selling spreads.
If a position gets challenged, it will be extremely difficult for you to manage and roll a spread compared with rolling a naked option.
In August 2018, I had an open position in DUST and it was a naked option (naked calls).
The price of gold continued to fall and I soon realized that I made a mistake by trading too many contracts.
However, I traded naked options so I was able to roll these positions forward by ~6 months.
By collecting the excess time premium credit, I was able to cut my 200 contracts in DUST by 50% (to only about 100 contracts).
If I was trading verticals, I would not have been able to reduce my size from 200 to 100 just by rolling it out in time.
The money that I had used to reduce the number of contracts would have instead been used to buy a higher priced call option.
What would happen if I was trading call spreads on DUST?
If I was trading verticals, that money that I received for extending duration would be used to buy the higher price call option.
By selling naked options, I was able to take that money and use it to reduce my contract size from 200 to 100 contracts.
For many traders, trading spreads allows them to finance and afford options that they wouldn't ordinarily be able to trade.
As a result, by trading spreads, you are increasing your risk, not decreasing it, because the spreads oftentimes provide synthetic financing.
If an option trading guru pushes you to trade verticals instead of naked options, you should think twice.
"If you think you can trust those option trading gurus pushing you to trade verticals instead of naked options, you should think twice." - BestStockStrategy.com
I'm glad that you've read the entire post.
This only proves that you really want to learn options trading.
Because of that, I have a fourth bonus tip for you!
The fourth tip is: You have to be extremely disciplined.
Many trading options for dummies tutorials and options trading tutorials for beginners do not discuss how stressful a losing position is.
They also don't discuss how disciplined and patient you must be to be consistently profitable.
You have to ignore other information that might distract you from option trading and trading options profitably.
People oftentimes promote one system yet they likely are unsuccessful traders.
Do not be deceived by "shiny objects" - just because they say they have made a lot of money trading does not make it true.
Unless they're teaching you to SELL option premium, then their system is likely garbage.
Ask them to show you their transaction history and a trading statement from a legitimate broker.
Another important point is that you must focus only on stocks within your watch list.
Do not get distracted if you hear about a stock that's not on your watch list.
I have a multi-million dollar account and my watch list has only ~10 securities.
I also have open positions in just ~5 - 7 securities at all times.
And these 5 -7 securities are always the same stocks, found on my watch list.
One of my students asked me about Tesla, Netflix or Nvidia - and I don't even look at these stocks because I don't want to be distracted.
My point here is that you can make A LOT OF MONEY with option trading by working just 10 to 15 minutes a day, but you must be disciplined and not get distracted.
If you are WELL-DISCIPLINED and you are willing to invest in yourself with the best way to learn options trading then you should become a student of BestStockStrategy.
Options trading can earn you a large monthly income.
You only need to be disciplined and also be willing to learn and practice what you learn.
It is also best to have a mentor who can guide you step-by-step in order to prevent committing the same mistakes others have.
If you want to find out the best way to learn options trading, sign up by using the form below to receive $400 worth of extremely valuable information.
Some members have told me that the information is worth thousands of dollars.
Please leave a comment below if you have more questions. I respond to every comment and I always look forward to sharing more valuable free information with you through this blog.
I (David Jaffee) help people become consistently profitable traders while minimizing risk. I graduated from an Ivy League University and worked at some of Wall Street's most successful investment banks. Subscribe to my YouTube channel for valuable videos - BestStockStrategy YouTube Channel. Finally, if you're looking to Land a Finance Job, then I've put together the best step-by-step course at : LandaFinanceJob.com
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