Learn Options Trading: 3 Must Know Hard Truths About Options Trading
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Learn Options Trading: 3 Hard Truths You MUST Know!

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 has taught over 1,500 students how to trade options.

Also as a dedicated option trading teacher, I post my transaction history on YouTube and in 2019, this account was up over 100%. You can see the trading statement and more information here: 2019 YTD Results (up 100%))

Beware of FAKE gurus who do not show their results or use predatory marketing tactics to sell a garbage trading product!

Most of these fake gurus rely on lies and manipulation to defraud innocent and beginner investors.

I make more money trading options than I do by teaching.

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.

Learn Options Trading Truths (Key Points)

  • Options trading provides predictable revenue, but you need to know what you're doing. You cannot make money trading options if you don't learn the best strategies.
  • You will not earn 200% a year with option trading. Don't feel disappointed because virtually everyone who tries to make these large gains will end up losing money.
  • Trading naked options is recommended because it's actually less risky than trading vertical credit spreads.
  • Invest your time and money to learn options trading and remember, "Discipline is Key!"
  • Approach more experienced traders and learn from their examples. Read my sample option trading strategies here.

Learn Options Trading: #1 Truth About Option Trading

You will make around 30%-70% a year in option trading

Feel disappointed?

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!

#2 Truth - Bigger Accounts Earn More Money

The second truth is that if you have a smaller account or account size, it will be difficult for you to earn a lot of money.

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.

Instantly Be a Successful & Profitable Trader with our Trade Alerts Special Offer

What happens when trading vertical credit spreads?

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:

  • Facebook
  • Boeing
  • Lockheed Martin
  • Goldman Sachs
  • Paypal

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."

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Learn Options Trading #3 Truth: Selling Naked Options are the Best Options to Sell / Trade

There's a lot of misinformation out there telling you that trading naked options is very risky.

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.

 For example:

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.

Take the BEST options trading education course and become a profitable trader

Key Points: 3 Hard Truth About Option Trading

  • You will make around 30%-70% a year with option trading. You can try to make more money than that but, you will likely end up losing money.
  • If you have a smaller account and account size, it will be difficult for you to earn more money. You will be forced to sell vertical credit spreads, which I don't recommend.
  • Do not have positions ~10 different securities at one time because if market volatility increases, you are going to get a margin call. You will be forced to close out those positions, and you may LOSE MONEY! It's better to focus on 2-3 positions. Plus, it's easy to get overwhelmed if you have ~10 positions. It's best to keep things simple.
  • Trading verticals is more risky than trading naked options.
  • Sign up for Trade Alerts – Receive real-time trade alerts so that you maximize your profits and minimize your mistakes; we have a Trial Offer of $19 for 7 days.

"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

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Bonus Tip: Learn Options Trading / How to Trade Options

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.

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 large dollar account and my watch list has only ~10 securities.

I also have open positions in just ~4 - 6 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.

Conclusion: Best Way to Learn Options Trading

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.

About the Author David Jaffee

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. My personal website is DavidJaffee.com.

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Leave a Comment:

10 comments
albertsons monoply says August 11, 2020

I love reading your site.

Reply
Trading says July 30, 2020

David Jaffee is the best and only legitimate options trading coach. Much respect.

Reply
TSLA Analysis Options Trading says July 29, 2020

My site and books believes that TSLA is the best stock to trade options on.

Reply
Aisha Caras says May 7, 2020

“This website really has all of the info I wanted about this subject and didn’t know who to ask.”

Reply
Adalberto Mishoe says August 8, 2019

Saved as a favorite, I like your website! Great options trading content.

Reply
    David Jaffee says September 8, 2019

    Thank you 🙂

    Reply
Shawn says April 7, 2019

Hi David. Thanks for what you do. If I have an account size of 7000 dollars US what are 5 small good stock candidates to watch list? I’m thinking 40 dollars or less range? Thanks

Reply
    David Jaffee says April 8, 2019

    Hi Shawn. This is discussed in the Education Course.

    Reply
Tim Wales says April 1, 2019

David,
Thanks for your effort and care that you put into these blog posts, very much appreciated by me and I’m sure others.

I have a larger size account and am able to trade naked puts without having to use spreads. If I use 200k to start how many contracts should be in an average trade. I noticed in earlier videos you had said the goal would be to have 45% liquidity or cash in your account. Is that because of the cash secured puts?

I have an account value of 1,700,000, Of which 50% is held in junk bonds. A position I’m not that happy with. I recently took over from my financial advisor, because I didn’t feel he was watching out for my interests. I’ve managed it for the last 3 months making 93k, but it was largely luck. Selling equities off just before the big drop in December and re-committing monies to dividend producing equities. I want to reduce my exposure in the junk bond market, I figure it is going to take a hit in the next 3 -18 months and don’t want to get caught in the turmoil. I have been trading some options but not with the type of knowledge that would insure long term success. Total neophyte. This is my families future and don’t want to screw it up. I’m 61 (retired) wife 55 and daughter 24. Im using the dividend equities to fund my retirement. I need about 60-70k per year to cover my expenses, so that is how I came up with the 200k and making 50% , should cover my nut and give me wiggle room. I don’t want to jump in to the deep end before I know what’s what, hence the question of size of contracts. I give you all this information because it appears as if you are honest and above board, so I decided to do the same. Not trying to boast or pound my chest. Just wanted the underlying issues known and to hear your thoughts. I haven’t signed on as yet, wanted to talk it over with my wife. She arrives home tomorrow from travels. Thought it might be good to hear your opinions before then.

Reply
    David Jaffee says April 1, 2019

    Hi Tim –

    I recommend keeping ~45% of your account available as buying power to protect against trading too large and also to protect against market volatility.

    And yes, I would definitely recommend my training at https://BestStockStrategy.com/memberships

    It is the best around.

    In my opinion, no one provides a training product that comes close to what I offer if you’re looking to be a successful & profitable trader.

    David

    Reply
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