Options Trading for Retirement

Options Trading 101 - The Ultimate Beginners Guide To Options

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by Gavin in Blog
July 18, 2023 7 comments
options trading for retirement

I asked an AI engine how much the average American’s monthly expenditure is.

And this was the answer it gave me.

“As an AI language model, I don’t have real-time data, and my training only goes up until September 2021. Therefore, I can provide information based on pre-existing knowledge.”

Oh, well. So I asked the same question to a traditional web search engine.

I got a wide range of answers ranging from $3000 a month to $5577 per month, with $5000 being a good average.

Obviously, the answer for a particular individual will vary greatly depending on affluence, location, lifestyle, and personal circumstances.

For the purpose of this exercise, let’s use an easy round number of $5,000 per month to see if option trading can be a source of retirement income.

I’m sure a good portion of option investors think the same.

I am not a financial advisor, and this is not financial advice.

Furthermore, your particular circumstance may differ greatly from this example.

I am just performing a hypothetical math problem for educational purposes.

If a person wanted to generate $5000 a month via options trading, what lump sum capital must they have to do this?

That depends on what rate of return per month option trading can provide.

I typed exactly this question in an AI engine, “What is the average monthly percentage return that can be generated from trading options?”

And this is what it gave me:

“The average monthly percentage return that can be generated from trading options can vary significantly and depends on several factors. It’s important to note that trading options can involve significant risks, and potential returns are not guaranteed.”

Not a single number was found in its response.

How sad.

I guess AI engines still have some improvements to make.

The best answer I found using a regular search engine is this one by SMB Capital which gave average monthly returns for a few option income strategies from 2014 to 2018:

Bearish Butterfly: 2.93%
M3: 2.75%
The Rock: 6.67%
Rhino: 1.91%

Upon first glance, you might say you just want to trade “The Rock.”

First of all, The Rock is an advanced strategy that is based on the M3.

So you must learn to successfully trade the M3 first.

Another thing is that the higher the return of a strategy, the more variable the results are, and there can be larger drawdowns because you have to increase risk to get increased returns.

In any case, for the calculation of our example, let’s use a 2% a month average return as a reasonable number that intermediate options traders can achieve.

Sure, a seasoned trader can earn a lot more.

And beginners might earn a bit less or are not (and should not) be using their full capital.

If an intermediate option trader uses $250,000 worth of capital and can yield an average 2% return a month, they would be able to generate $5000 a month for retirement living.

Understand that this is not consistently $5000 a month like a paycheck.

Some months it might be less, and others might be more.

Some months might be nothing, and some months might even be negative.

So there needs to be enough cash set aside for bills.

Does that mean that if we save up a quarter of a million dollars, we can quit our jobs and retire?


The reason is that options traders will not use their entire accounts for trading.

Many seasoned traders will only use 50% of their account in options trading, with the other half in cash.

It will vary based on market conditions.

Depending on their risk tolerance, other traders might even use less than that.

For the non-seasoned traders, perhaps their spouse will not allow them to use their entire nest egg for trading – and rightfully so.

Therefore, to generate $5000 a month from options trading, one needs to save up at least half a million dollars.

Then use $250,000 for option trading strategies to generate a 2% return each month.

Options trading is a skill that needs to be learned. It is not like,

“Okay, I got half a million and am retiring today.

Where is my 2% return?”

You need to learn and practice to trade options at a level where it consistently generates a 2% return a month.

It may take a couple of years.

But once you learn it, it is an invaluable tool and can set you up for your retirement living.

Those who have learned it will not regret all the hard work that they put into it.

So start learning today.


Is 2% a month on options trading really possible?

Two percent a month is about 24% annual return.

With the average S&P returns being 7% a year and very few investment vehicles achieving this return, it is understandable to question this return.

It depends on what you mean by 2%.

Two percent returned on the capital used for trading? Or a two percent gain on the portfolio per month?

If it is the former, then yes. It is possible to generate 2% a month, and many have achieved this.

Maybe not right away when starting, but eventually after learning the skill.

In our example, if we were to keep 50% of our portfolio in cash and only use half for trading, then the return on the portfolio would be only 1% a month – still good.

Why do investors not use their full accounts for trading?

Two reasons: risk management and psychology.

Risk management:

By not using their full account for trading, investors can mitigate the risk of significant losses.

Markets can be unpredictable, and trading involves inherent risks.

By allocating only a portion of their capital to trading, investors can protect themselves from black swan crash events that can wipe out the account or severely damage it to the point where it can no longer generate that consistent income.

If an account draws down 50%, getting it back to its former amount is very difficult.

You then need to double it in order to get back.

Even if it draws down a little, it may draw down enough where it becomes small enough that it is generating less than your monthly bills, and then you have to start taking out capital, which in turn makes it smaller, and so on.

The other reason is psychological.

It allows one to be able to sleep at night.

No matter what happens, they know that at least one-half of their nest egg is safe.

Trading can be emotionally challenging, and excessive exposure of one’s entire account to the market can lead to increased stress, anxiety, and poor decision-making.

By maintaining a portion of their account separate from trading, investors can alleviate some of these psychological pressures and make more rational and objective trading decisions.

If options trading is demanding and is like a job, can we really call it retirement?

You are correct.

That’s why I prefer to call it “generate income for retirement living.”

It really is a job.

But at least a job without a boss and one where you can work in your pajamas.

And hopefully, a job that you love.

Can I teach my offsprings option trading so that they can do the work instead?

That’s a splendid idea.

We hope you enjoyed this article on options trading for retirement.

If you have any questions, please send an email or leave a comment below.

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.


  1. A. Nathroy says:

    Dear Gavin,
    I read few articles, and can’t thank you enough for the knowledge imparted in those articles. You are a “Options Guru”.
    May God bless you and your family for your generosity in imparting this free knowledge to your readers.
    Thanking you and With Best Regards
    A. Nathroy

  2. K. Radebold says:

    Fabulous article! Anchored in reality, not wishful thinking. Risk management is 50% of trading. Thank you.

    1. Gavin says:

      Glad you enjoyed it! Thanks for your comment.

  3. Zoe Brytin says:

    Thank you Gavin! I really enjoy your material.

    1. Gavin says:

      Happy to hear that! Reach out any time if you have questions.

  4. Jazzo says:

    Hey Gavin, have been following & reading your articles over the last few months – many thanks for being generous with all the info. I have been retired for the last 6 years & trading options for income for the last 11 years. Using my SMSF in pension phase, I’m successfully managing to generate 2/3 times the income I was earning in my day job & that too tax free! I encourage all those interested in options, to pursue learning this skill. This is the only endeavour I know that will allow one to generate an income without leaving your front door. Cheers, & all the best

    1. Gavin says:

      That is so awesome! Congrats and thanks for your comment. Reach out any time if you have questions.

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Options Trading 101 - The Ultimate Beginners Guide To Options

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