This illustrates two important points for me, given how and what I trade. 1) Trading options gives you much higher leverage than trading stocks (I got 25X the profit), and 2) SPY is one of the best tickers to use for options trades because it allows you to profit very well on relatively small moves.
Although it's possible to make $1,000 (or even more) in a single day when you are day trading, sustaining that level of gain over time is very, very difficult.
The answer is yes. Alot of people are living off options trading.
The answer to this question is yes, you can make a living trading options and even make a fortune if done well. However, trading options carries a huge capital risk and one needs to get more knowledge on how to manage funds to avoid losing money.
Legendary investor Warren Buffett is a proponent of time diversification and firmly believes that stocks are less risky in the long run. Therefore, he often sells long-term put options instead of buying them for portfolio protection.
As of Jan 5, 2025, the average annual pay for an Options Trader in the United States is $112,369 a year. Just in case you need a simple salary calculator, that works out to be approximately $54.02 an hour.
Many Options or entirely stocks do not have liquidity. This not only makes the entry difficult due to the difficulty of getting a good bargain but also makes an exit difficult. At times in many stock options, there are no quotes after a big move. This makes it impossible to book profits.
In the past 30 years, technology startups have created tens of thousands of millionaires in Silicon Valley, largely from stock options.
Only 10% of traders make money, and the remaining 90% end up in a loss. There is a 25% chance of losing your investment and a 75% chance of profit.
First, pattern day traders must maintain minimum equity of $25,000 in their margin account on any day that the customer day trades. This required minimum equity, which can be a combination of cash and eligible securities, must be in your account prior to engaging in any day-trading activities.
Edward Thorp was likely the best option trader in the world, with a 20% annual return for 30 years. Warren Buffett is also among the most successful options traders, using a cash-secured put strategy to generate income. However, Buffett's focus is mostly on buy-and- hold stock investing.
A common approach for new day traders is to start with a goal of $200 per day and work up to $800-$1000 over time. Small winners are better than home runs because it forces you to stay on your plan and use discipline. Sure, you'll hit a big winner every now and then, but consistency is the real key to day trading.
What has been the best hour of the day for SPY stock performance? SPY stock price had positive returns 61% of the time between 11:00 AM ET and 12:00 PM ET, for an average return of 0.0%. The weakest hour of trading for SPY was between 3:00 PM and 4:00 PM ET for an average return of -0.1%.
Who might not want to consider trading options? Buy and hold investors. Individual investors whose investing plan involves buying stocks, bonds, and other investments with a multiyear time horizon may not typically consider trading options (although there can be circumstances where it may be appropriate).
SPX options hold a higher value than SPY options because of the difference in share prices. A trader needs 10 SPY options to have the same value as one SPX option. While SPX options hold more value per contract, they both produce similar returns. If the S&P 500 increases by 1%, the SPY will also increase by roughly 1%.
The Illustrious Jesse Livermore and His Market Mastery
Jesse Livermore is often revered as one of the most legendary options traders in history. His ability to predict market movements allowed him to build and subsequently lose several fortunes.
Even though successful options trading can be immensely profitable and financially liberating, you need to set your life up so you can afford to get good at trading without worrying about money and stress. It is possible, but trading is not a way to get rich quickly or without effort.
Reasons for these losses include market volatility, small price changes, transaction costs, and psychological factors that work against the average trader.
Assuming they make ten trades per day and taking into account the success/failure ratio, this hypothetical day trader can anticipate earning approximately $525 and only risking a loss of about $300 each day. This results in a sizeable net gain of $225 per day.
Retail traders made a combined net loss of ₹1.81 lakh crore in futures and options trading in the three years to March 2024 and only 7.2% of individual traders made a profit during this period, a study done by markets regulator.
The option sellers stand a greater risk of losses when there is heavy movement in the market. So, if you have sold options, then always try to hedge your position to avoid such losses. For example, if you have sold at the money calls/puts, then try to buy far out of the money calls/puts to hedge your position.
Trading options for a living is possible if you're willing to put in the effort. Traders can make anywhere from $1,000 per month to $200,000+ per year. Of course, many traders make more, but it all depends on your trading account size.
A Bull Call Spread is made by purchasing one call option and concurrently selling another call option with a lower cost and a higher strike price, both of which have the same expiration date. Furthermore, this is considered the best option selling strategy.
With options, it can cost less to get the same exposure to a stock's price movement than it does to buy the stock directly. Options prices can be volatile, giving traders an opportunity to profit on the fluctuation in price, even from a relatively small change in the price of the underlying stock.