Options Trading Example: An Example How Options Trading Works
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Options Trading Example: How You Can Make $1 Million a Year Trading Options

In this post, I will share with you an options trading example and how you can use this best option strategy to earn $1+ million dollars a year by trading options.

Earning a million dollars a year by trading options may be a bit misleading because you will need to have a multi-million dollar account. In general, we target a return of around 40% a year.

My options trading example: In 2017, I earned 72 percent. In 2019, my smaller account was up 117% with a 100% win rate!

If you want to make consistent profits, your goal should be to learn a legitimate strategy for the long-term. 

Options trading for beginners is very difficult, primarily because a few mistakes can end up being very costly.

If you want to read about an options trading example and strategy you can use to start making money, then this blog post is definitely for you.

Additionally, you can also read this blog post which is an options trading guide.

Making Money with Options Key Points

  • Think about the long-term and learn a legitimate skill
  • It's relatively easy for us to make money by trading, since up to 98% of our trades are profitable
  • It's important to limit risk by trading a small number of contracts and closing out trades early
  • Selling option premium has a high statistical probability of profit

How to Easily Trade Options [My Story]

I know that a lot of people are greedy. They're not satisfied with earning ~3% a month.

The reality is that if you try to make more money, you're also going to assume more risk, which will increase the likelihood of losing money.

I want to share with you my personal options trading example and how to trade options easier.

Who am I? My name is David Jaffee. Who is David Jaffee?

I graduated from an Ivy League University and I worked as an investment banker for five years (click for a video about my experiences).

Despite my background, I still gave in to my inherent human greed to make more money as quickly as possible.

I can tell you that it really sucks when you lose money and if you'd like to learn from my options trading example, then it's possible that you won't make the same mistakes that I have.

I'm OCD and fanatical about making money and optimizing my trading which has enabled me to constantly improve.

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

Don't be greedy. You can earn ~3% a month using the options trading example strategy I am going to share with you in this post.

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My Options Trading Example

The most important thing that you need to do is limit your information sources. We live in a society where there's way too much information and there's not enough action.

You want to turn yourself into a creator and not a consumer.

The second thing that you want to do is to evaluate your account size. If you have an account size that is below $15,000 - $20,000 then you want to have a watch list with five securities on it. 

You must also remember that you should have no more than 1-2 positions / trades on at a time (focus on trading B+ and A- opportunities).

You'll have a watch list of about ~10 securities that you can choose from.

This is important if you want to earn money using my options trading example.

If you have a multi-million dollar account, I still believe it's best to only trade 4 - 6 securities at once.

I usually have positions on the following securities:

  • Facebook / META
  • Amazon
  • JP Morgan
  • Mastercard
  • Tesla

I sometimes also have positions on McDonald's and Microsoft as well.

I watch these stocks and get comfortable with the recent trading range.

For Facebook, which at the time I'm writing this, is trading around $175, I know that its recent trading range is around $170 to around $182 dollars.

I simply wait for Facebook to fall to the low end of that trading range, to around
$172 dollars, and then I sell an out of the money naked put option with a strike price of around $158 dollars.

This is a good put option example and exemplifies our call and put options examples and options trading strategies.

Options Trading Strategy Tips

  • Limit Your Information Sources – Do not read SeekingAlpha.com or watch CNBC. Those are for entertainment purposes and will not help you make money.
  • Create a Watch List – I only trade ~10 stocks and I have positions on ~4-5 underlying stocks at one time. I keep things incredibly simple and ignore everything else. I highly recommend that you narrow the amount of stocks that you trade. If you have an account size of $20,000, you should only trade 1-2 stocks at one time.
  • Trade from Your Phone – Ever see those losers with 8 monitors? Yeah, it's likely for marketing purposes. I make all trades from my phone and have never used any charting software. Keep things simple because if you complicate things, it'll likely negatively impact your returns.et Familiar with the Recent Trading Range – Get comfortable with the recent trading range on the stocks in your watch list. If the stock trades at the high end of the range, sell a call. If it trades at the low end of the range, sell a put.
  • Trade Naked Options (when VIX is high)– As discussed before, call your broker and request the ability to trade naked options. It's a lot easier to manage option positions when trading naked (although I definitely believe that there is a time and place to buy 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.

Be a Successful & Profitable Trader

Follow My Trades with Real-Time Trade Alerts

Options Trading Example: Naked Options

I know that a lot of people right now think that selling naked options is incredibly risky.

The people that say that are likely not successful and profitable traders.

Selling naked options can be a lot safer than selling vertical credit spreads because it
maximizes the credit that you receive.

It's much easier to manage and roll a naked position as opposed to a vertical credit spread.

Also, when you sell a naked option, it inherently reduces your buying power by substantially more than a vertical credit spread.

As a result, it protects you against your human desire to engage in greedy activities.

Naked options also allow you, during a large selloff, to take ownership of market-leading stocks at discount prices so that you can participate in the upside of the stock.

I definitely believe that there is a time and place to BUY options. It's important to buy options to reduce portfolio volatility. However, I tend not to buy puts during periods of volatility.

Traders have a tendency to trade too many spreads. If their broker allows them to sell 2 naked options, then they will sometimes trade 20 vertical credit spreads and then take a massive loss because the underlying stock trades below the option that they sold and above the option that they bought.

They end up getting assigned those 20 contracts which is too large for their account and their broker ends up forcing them to close out that trade at a massive loss.

Vertical credit spreads are also difficult to roll / manage, however they are significantly more capital efficient than naked options.

If you're a disciplined trader (don't trade too many contracts and also close out your positions early) then trading spreads is fine.

Perhaps the biggest issue with spreads is that it gives people a false sense of security that they can trade a lot more contracts than they should be trading.

To be profitable, study this options trading example, sell a naked option (or sell spreads with a disciplined approach) with an expiration of around four to six weeks on market-leading securities.

You can then wait two or three weeks or wait until the option hits your profit target.

August 2020 Update

I now trade naked options only when the VIX is above 20. With the VIX below 20, I prefer to trade spreads

My primary reasoning is that spreads help protect against violent moves.

When trading vertical credit spreads, you can profit from the insurance that you purchased to the point where it can be quite profitable to hold a spread during a violent selloff.

Stock options trading requires substantial discipline, and there are usually 1 - 2 times a year where violent moves lead to large volatility expansion.

By trading options spreads, you're protected from these events.

Options trading for dummies: to summarize, trade spreads when the VIX is below 20, and naked options when the VIX is above 20.

Another way to earn extra money is by selling option premium. It helps increase your income.

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More About How to Trade Naked Options

Let's say you sold an option on Facebook when it was trading at $175 dollars. Then, let's say Facebook goes up to $185 dollars in two weeks.

With Facebook trading at $175, you could have sold a $158 put option and collected around $1 per share and premium.

Two weeks later, if Facebook is trading at $185 then that option is probably trading at 15 cents.

You've been able to receive 85% of the premium in just 1/3 of the option duration.

As a result, it's not an efficient usage of your capital to wait an incremental four weeks to simply collect 15 cents a share.

Close out that position and then scan your watch list to see if there is an opportunity for you to sell puts or calls in another position.

If one of those positions is trading at the low end of its trading range, then you sell an out of the money put and then you just simply repeat the process.

This is a put option example that falls within our options trading strategies. At BestStockStrategy.com we teach options trading for beginners and also for advanced traders.

That is the simple options trading example that has allowed me to reduce risk while trading options.

This same strategy will, hopefully, allow you to earn millions of dollars while trading options.

If you want to learn more, then click and read this post about selling option premium. It will help increase your income.

Frequently Asked Questions (FAQs)

What are the 4 types of options?

Buying a call option, selling a call option, buying a put option and selling a put option.

When should you buy options?

The best time to buy options is during market extremes. When the stock market is oversold then buying a LEAP, or long-dated call option, is a great strategy.

When the market is overbought, and euphoric, that's a great time to buy put options to protect your portfolio and limit future portfolio volatility.

Why do option buyers lose money?

Option buyers lose money because most options expire worthless. Even so, it's definitely possible to make substantial amounts of money by buying options if you're able to buy options at market extremes.

Is option trading like gambling?

Option trading is not like gambling if it's done correctly. While you can gamble with low probability trades, it's better to be disciplined and have the probability of profit in your favor.

What are the types of options contracts?

There are two types of options contract: puts and calls. Both puts and calls can be purchased to speculate on the direction of the security or hedge exposure.

They can also be sold to generate income.

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:

20 comments
Hafez Janssens says July 4, 2020

I have about 10K in my account. I am currently doing some combination or cash secured short puts and long calls. I would like to earn more for the short puts, but since I don’t have much cash to back the shirt positions, I can get just about $200 for a 2 -3 month trade, it seems like the calls accumulate cash faster. Should I be trading on margin or stock to cash secures trades? Additionally, when you say not to sell too many contracts, is that < 10, or do you have an optimal number of contracts that makes this strategy smooth, in other words I can sell and buy back easily? Thanks.

Reply
    David Jaffee says July 4, 2020

    You should be selling options on margin.

    Also, you should not be buying options (unless it’s part of a spread)

    Reply
edenerotikashop says March 16, 2020

It’s actually a great and useful piece of information. I’m glad
that you shared this helpful information with us. Please stay us up to
date like this. Thanks for sharing.

Reply
Cicely Rosenow says February 7, 2020

This blog about Options Trading Example: How
You Can Make $1 Million A Year Trading Options. has helped me enormously, is
a very good topic.

Reply
Matthias says January 23, 2020

When someone writes an piece of writing he/she keeps the plan of a user in his/her mind that
how a user can know it. So that’s why this piece of writing is great.
Thanks!

Reply
Franz says January 19, 2020

Dead indited content material, Really enjoyed studying.

Reply
avis says September 12, 2019

My relative wants me to do options trading with his money, which he says upto $200K – but I am not sure is it worth to try – as I am worried about losing all his money. What do you say ?

Reply
    David Jaffee says September 13, 2019

    If done correctly, there is no better stock market strategy then selling option premium. It’s safe and also yields substantial returns.

    Reply
Deone says September 8, 2019

Wait, what? A whole strategy with specific examples and no forcible call to action to buy your education program?

Thanks. I’m currently subscribed to a pretty conservative vertical credit spread dude, and trying to learn about this stuff. Glad I found you.

Reply
    David Jaffee says September 9, 2019

    Thank you. I’m glad to help.

    Reply
Sophia says July 30, 2019

Is it really possible? I know you were able to do it but I would like to see if I can do it too. I started and learn about this from fx leaders course and now expanding my knowledge ending up reading your post which makes it more interesting for me to continue this journey.

Reply
    David Jaffee says August 1, 2019

    FX trading is a scam

    Reply
Sol Augello says July 14, 2019

Thanks for the great info! Looking forward to more updates on this.

Reply
Fiskeolie til hunde says June 25, 2019

Thanks for the blog article. Keep writing.

Reply
Carl Daniels says March 26, 2019

My options account is about $40k. If I made 1 contract with BOEING, almost all my cash will be tied up in this single trade. Using your methods, is this scenario acceptable?

I’m having difficulty seeing how $40k will be enough to support your monthly fee.

Thanks

Reply
    David Jaffee says March 26, 2019

    You have more than my average student.

    Not sure why you believe that 1 contract of Boeing would use up even close to all your buying power.

    That’s not even close to being accurate.

    Also, if you’re concerned about buying power, you can trade spreads.

    I have many students who are constant subscribers with $15,000 accounts.

    Reply
      Leon says April 3, 2019

      He is right: for cash-secured puts at $400 strike one need 400 x 100 = $40K. For a regular margin trading account he would probably get away with 1/5 of that, i.e. $8K, but his risk is (much) higher.

      Reply
        David Jaffee says April 3, 2019

        Correct. Reg T is margin requirement is 20% of the maximum loss.

        I would not trade options if I was unable to use margin.

        Reply
foloren torium says February 11, 2019

Thank you a bunch for sharing this with all folks you actually recognise what you are talking about! Bookmarked. Please additionally seek advice from my website =). We could have a hyperlink trade arrangement between us!

Reply
    David Jaffee says February 11, 2019

    Thank you for the comment.

    Reply
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