There’s a lot of buzz going on about how trading options successfully can be a fancy, easy-to-perform, no sweat kind of business.
Successful traders love to advertise their big homes, elegant cars, excessive partying, and other glamourous activities (not me!) in a way that you feel you are missing out on something while you are stuck in your regular 9-to-5.
While yes, there are some wildly successful traders out there, none of them got there without their own share of hard work and, possibly, their own share of costly mistakes.
If you have drained your brain thinking how you can trade options in a way that lets you quit your regular job, here are a few clues you won’t probably learn on your favorite successful trader’s Twitter account.
The Mindset
One of the most popularized perspectives of entrepreneurship these days involve a garage with one or two people working their backs off to launch a business idea.
This is the early stage of most startups nowadays and they usually have no money, no connections, and no clients.
Then, as time passes, they learn some hard lessons about business and they eventually manage to successfully grow and scale up their garage operation into multimillion-dollar businesses.
For some reason, most people think of trading as something you can learn out of reading a few blog posts.
What they are probably missing out is the fact that trading is, like the garage venture, a business itself.
There’s a learning curve involved, it takes time to learn the ropes, there will be some hard lessons to learn, and you will probably struggle to get where you want to be.
Therefore, if your goal is to trade options in a way that you can make a living out of it, you must develop the right mindset, one that helps you push forward, even when your portfolio’s performance is not as pretty as you would like it to be.
The Budget
If you are accustomed to a lavish lifestyle derived from a steady 6-figure income and your occasional performance bonus, it would be wise for you to do the math first before you seriously consider quitting to trade options for a living.
Let’s say you have monthly expenses of around $7,500. This means that you’ll need to earn at least $90,000 a year to maintain your current way of living.
Now, let’s assume you can pull off a 15% return from your options trading operation. That means you need a portfolio of at least $600,000 to break even on your expenses.
Of course, this leaves out any leverage you may use to fund your trading operations, but it is a good estimate of how big your portfolio should be to consider trading options as a full-time job.
Additionally, even if you do think you can pull it off, you should know that a 15% return is far from being guaranteed, especially if you are starting off. For this reason, you should start trading and generating a track record over an extended period before you consider quitting your job.
If you are able to take some vacation, that would be beneficial for your education process, as you will be able to devote a few weeks into trading to see how advanced you are in the learning curve, and how positive your performance can be if you go take the “I quit” path.
The other option which to me makes a lot more sense is to try and pick up part-time work with a new employer or your current employer. If you can generate half of the $90,000 via a steady part-time pay check that goes a long way to reducing the pressure of trying to generate your entire income from trading.
The Time
They say it takes 10,000 hours to become an expert in something. I’m not here to debate whether that’s true or not, but what I do know, is that becoming a successful option trader takes a huge time commitment, especially in the early days when the learning curve is at it’s steepest.
If you’re not prepared to put in the time in takes to be successful, then don’t bother.
I’m at a point now after 15 years that trading doesn’t take up quite as much time, but there are still things that need to be done. Researching, learning, developing trading plans, reviewing trades. These are all important things that must be done even by veteran traders.
Yes, trading takes up much less time for me now than it did 10 years ago because a lot of it becomes second nature, but it takes a while to get to that point. Someone starting out must be willing to put in the time.
The Knowledge
Trading options involve understanding some complex financial dynamics, ratios, and trading strategies and techniques.
This means that you must devote a significant amount of time in learning and growing your skills before you start risking significant amounts of money.
If you don’t know anything about sushi, you probably won’t think it is a good idea to start a sushi restaurant by yourself. You could end up poisoning a bunch of people as a result, and you could definitely go broke.
The same goes for trading options. If you’re starting out, you have to take some time to learn.
On the other hand, finding a mentor to coach you through the process of building a successful career as an options trader can be another useful way to cut corners in the learning process.
You’ll save some money and time by listening to both his or her good and bad experiences.
The Guts
Trading options as a full-time job is pretty much like running your own business. If you work as an accountant and you suddenly run out of clients, you would probably freak out.
As an options trader, you could wake up one morning to see your precious trades go south and you’ll probably react similarly to it.
The thing with trading, differently from being an accountant, is that you can lose significant amounts of money in the process of building your career.
That’s not something an accountant has to worry about. For this reason, it takes guts to trade options as a full-time job, as you are risking money every day to make a living.
Even though there are some ways to limit your exposure to heavy losses, and also to recoup from them in case you go through that, you will still have to deal with a constant hesitation and second-guessing that can prompt you to make irrational decisions that can have a negative impact on your portfolio’s performance.
Bottom Line
While it is definitely possible to trade options in a way that it becomes your full-time job, before you hand over your resignation letter, take a minute to go through these steps in your mind to make sure you are fully prepared for this journey.
Do you have the mindset?
Do you have the budget?
Do you have the knowledge?
Are you willing to put in the time?
And most importantly, do you have the guts?
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
