Options trading is both similar to stock trading and very different. If you’ve been asking, “Can I become a full-time options trader?” you’ve come to the right place.
In this post, we’ll cover everything you need to know about option trading as a career, including the benefits and drawbacks and what it takes to make it as a full-time options trader.
What are options?
Options are short-term derivative instruments that derive its value from the underlying asset.
Options can have different expiration dates, once the option reaches its expiration date, it becomes worthless and can no longer be exercised.
Expiry of Stock & Index Options
Trading in index options can be done on a monthly as well as weekly basis.
Index options, which have a monthly expiry, expire on the last Thursday of every month.
Index options having weekly expiry are scheduled to expire every Thursday for Nifty and Bank Nifty contracts.
Trading in stock options contracts is available for a three-month period as per the stock exchange regulations.
As a derivative, it means there are many different ways a trader can profit from any movement (or lack thereof) in the underlying asset.
Option Buying & Option Selling
Option buying
Option buying is a common strategy used by traders to gain exposure to the price movements of an underlying asset, such as a stock or a commodity.
It can be a useful strategy for traders who want to limit their potential losses while still gaining exposure to the price movements of an asset. This is because the premium paid for the option is the maximum loss that the trader can incur, regardless of how much the underlying asset's price moves against them.
Option Selling
Option selling is a strategy where you agree to sell an asset at a certain price in the future, in exchange for a premium payment upfront.
Let us take an example,
Think of it like renting out your car.
You give someone the option to buy your car from you at a set price in the future, and in return, they pay you a fee.
If the person decides not to buy your car, you get to keep the fee and your car.
However, if the person does decide to buy your car, you are obligated to sell it to them at the agreed-upon price, regardless of whether the market value of the car has gone up or down.
Minimum capital required for Options trading
The most frequently asked question is what is the minimum capital investment to start options trading?
In options trading using a small amount of capital can be a hindrance as it may expose you to high risk as well as many stock brokers may restrict what you can do.
It is highly advisable that at a minimum, one should be putting in 30k-50k rupees for options buying & 1.5- 2 lakhs for option selling with 1 lot.
In the initial days, the goal should be to protect the capital, take small profits & avoid big losses. Once you start making profits consistently, you can gradually start increasing your trading capital & transition to full-time options trading.
Option trading strategies in the challenging market
“Great traders have passion, confidence, an edge and a game plan. They are prepared. They keep their system simple.” – Gavin McMaster
Traders are always looking for option strategies to minimize risk, reduce losses & increase the likelihood of earning huge profits when trading calls & puts.
Nevertheless, for a beginner options trader, with so many possible structures, it can be daunting.
For one, it can be difficult to understand which strategy to use and how it works.
Also, when starting to trade options, it is often unclear which strategy is best suited for new traders.
For this reason, we have listed below a few simple options strategies for new traders.
Bullish Options Strategies
Bearish Options Strategies
Neutral Options Strategies
These are the basic options strategies that a new trader can start using, however, if a beginner has a good knowledge of advanced option strategies, they can definitely trade that structure.
Most importantly, there are no inherent advantages to the complex option strategies.
5 options trading best practices
The world-renowned trader, adviser & entrepreneur Oliver Velez says:
“Everything needs to be rule-based… A disciplined trader has a trading system & strategy.. And they are not governed by their emotions and thoughts.. Your thoughts & emotions betray you. What doesn’t betray you is a back-tested trading plan that is written down on a piece of paper..because that trading plan doesn’t have a single thought nor does it have any emotions..It’s the same every single time.. It never changes..
If you don’t do your trades the same every single time, how are you going to be consistent? Because consistency comes from doing something consistently. You need to be 100% robotic in the beginning.” source: YouTube
How long does it take to become a full-time profitable options trader?
The well-known 26-year veteran trader Oliver Velez says it is different for everyone.
It took him six years to become profitable..
Price action trader Al Brooks says it took him ten long years of losing money before becoming a profitable trader
At the end of the day, it all depends on how fast you want to become a profitable trader & how much effort you’re willing to give to get there.
Bottom Line
Options trading requiresa lot of patience and isn’t a get-rich-quick scheme, but it does offer a way to get rich in the long run if you’re good at it. As you develop as an options trader, you’ll need to learn a few simple options strategies and how you can diligently craft a strategy to build a full-time income.
