THE PROCESS OF TRADING OPTIONS FOR A LIVING

  • January 23, 2018

Watch our video on day trading options for a living.

TRADING OPTIONS FOR A LIVING: CAN I MAKE IT?

  1. Trading options for a living? Here's how you can make it:
  2. First and foremost, make sure you study options
  3. Determine whether you are long or short biased
  4. Determine your risk management tolerance
  5. Find out what options strategy you're drawn to most
  6. What are you looking to make per year?
  7. Break it down to daily income goals
  8. Calculate what options strategy will help you realistically reach your income goal
  9. Stick with your daily plan, cut your losses quickly and let your runners run
  10. Options trading for a living is hard but is doable with the proper discipline and mindset

In this blog post we are going to talk about trading options for a living. If you're wondering can I make a living trading options...then Yes, you can trade options full time and make a comfortable living doing so. First, you need to know the proper way to trade put and call options.

If you're looking to enter the wonderful world of trading options for a living, then learning technical analysis is key. Finding your entry and exit strategies are the best way to make a living with stock options. When holding options contracts overnight, buy near the close of the day.

Buying as close to the 9 EMA (exponential moving average) gives the best momentum entry possible. You're buying at moving average support. Trading weekly options is also a popular options strategy.

Trading Options For a Living

You can see in this example we have $AMD breaking out above the light blue (9 EMA) moving average and running to the top of the trend channel (orange line) resistance before trading sideways and eventually selling off to the 50 SMA (Purple line) support.

1. BASICS OF TRADING OPTIONS FOR A LIVING

Look at the daily chart when purchasing an options contract and pay close attention what the indicators are showing. If they are bullish, buy a call as you believe that stock will go up the next day. If they are bearish, buy a put as you believe the stock will go down the following day.

For example, I use the 9 EMA, 20 EMA, 50 SMA and 200 SMA on my daily charts. If I see that the price is riding above the 9 EMA and there are no moving average crossovers, then I'll consider that a bullish sign.

I also look at the RSI (Relative Strength Index) and the MACD (Moving Average Convergence Divergence). The RSI shows whether the stock is overbought or oversold. MACD shows the trend of the stock. Lastly I draw trend lines and find patterns as well as horizontal resistance levels.

The Ichimoku cloud is a helpful trading indicator to use with options.

You've looked over all the indicators and know which way you believe the stock will move. You must make sure you give yourself enough time on your options contract for your plan to materialize.

In the beginning, I have found myself in a sticky situation when I didn't give myself enough time on the option. All options expire. That's why selling options is a great trading strategy.

So if you choose an options contract that's only a couple days away, yes that may be cheaper, but you don't have the wiggle room if the stock decides to take longer to make its move to your profit zone.

Are you still wondering can I make a living trading options? If so, then learn options more in depth by taking our options course.

HOW MUCH MONEY DO YOU NEED TO TRADE OPTIONS FOR A LIVING?

  1. Here's how much money you need to trade options for a living:
  2. If you're looking to make unlimited day trades then you need at least $25,000
  3. If you are going to be a short term swing trader then you'll want at least $10,000
  4. $5,000 is good for small accounts buy will make it a bit difficult to create a living
  5. Having the money is great but what's most important is proper risk management

I personally love trading options for a living. You can get in on the action of high priced stocks that trade at a price level that would otherwise be outside of your budget. You may not be able to buy even one share of Amazon, but you could afford a call or put option at around $500.

Trading Options For a Living

Above is an options chain on $AMZN showing a couple different strikes. Options traders look at the bid vs. ask to get the best entry on the contract they are trying to buy. Because $AMZN is so expensive, and moves so much (dollar wise) the bid and ask are usually pretty wide, when compared to the popular ETF $SPY.

Something to consider is how long you plan to hold the option for. You can day trade the stock option or hold it for a swing trade, depending on the setup. Although options are used mostly for swing trades, if you buy an option in the morning sometimes taking profit the same day is the best course of action, if resistance is encountered or a desired profit level is achieved.

HOW MUCH DOES AN OPTIONS TRADER MAKE?

  • It's realistic for an options trader to make at least $100,000 per year or more full-time but it's important to realize that most traders won't make this amount. It takes hard work, mental discipline and having the proper capital for a trader to make this kind of money. The average trader makes between $1,000-$10,000 per year trading options part-time.

Can I make a living trading options? If you're trading options for a living, taking your profits and not letting greed get a hold of you is paramount. I know from personal experience that wanting a larger profit rather than being happy with the smaller profit level can cause you to end up losing a large amount of your options contract value.

Not every options contract is going to make you $1,000. Sometimes it’s $150. Sometimes it’s $50. You never go broke taking a profit. You can always re enter that trade if you like the second setup. Keep it simple. Buy at support and sell at resistance. 

We teach how to map out support and resistance on our live daily streams. Check out our trading service to learn more.

FINAL THOUGHTS: CAN I MAKE A LIVING TRADING OPTIONS?

Trading options for a living can be an emotional roller coaster. Watching the price action fluctuate can wreak havoc on your emotions and cause you to panic sell or FOMO buy. I have watched a stock climbing and thought to myself that I had better get in because I am missing a big profit, only to buy at resistance and watch that stock fall back down to support.

I have also had an option contract that I applied proper technical analysis on before buying and got a good entry but news made the stock fall and I panic sold for a loss. Then I watch as it climbs back up and I could have made a profit.

Trading Options For a Living

Above: In this chart, $GM released news on 2018 Q1 guidance early, ahead of earning (highlighted yellow). The info sounded good at first but then the market analyzed the information further and determined the financial news was not all that great. So the stock rallied only to fall back into its original trend, and is now heading back to the lower dark blue trend line (support).

Trading options for a living is rewarding, but to be successful at it, you need to make sure that you follow proper technical analysis, including finding the proper support and resistance levels. Technical analysis is your friend! Keep your motions in check as you watch price action move throughout the day. If you gave yourself enough time (option decay time) and followed the technicals, you will turn a profit. And don’t forget to take your profit when the time is right! Register to take our free online trading market courses.
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