Do you have to be a good stock trader to succeed in options trading?

Discussion in 'Options' started by elitetradesman, Jun 25, 2011.

  1. Have you seen anyone trading options for a living that never made money trading stocks? Conversely, are successful options traders usually good at trading stocks?

    I'm largely interested in writing options on stocks. If I wasn't successful trading stocks, should I not move on to stock options?
  2. rmorse

    rmorse ET Sponsor

    The skills are different but the discipline of trading is the same. You have to find an edge. Take advantage of that edge over and over again until it does not work anymore, then find another edge. Learn to deal with being wrong. Rate yourself by your P&L vs your risk taken, and nothing else.

    Good luck, options are not easy. I did it for 25 years, traded stocks as a hedge only.
  3. 222bc


    Do you have to be a good stock trader to succeed in options trading?
    Probably no but it would help a great deal.

    When i see options people describing strategies mentioning that there is no way to tell where the underlying instrument will be in a few months it is just half the story.

    There are usually many swings in a move between point A and B and experienced practitioners can profit by lightening up or adding to their position or hedging at certain levels (just one example using volatility bands to discern short term extremes).
    Needless to say this helps the bottom line.

  4. cloudy


    I started out in my "trading education" doing option spreads. It was a disaster. Find a good options book or good free online material, or tutorials from your broker. Books by the author and owner of "" will only teach you the basics of which tutorials can be even found free online. Optionetics red herrings you into "advanced methods" which I suspect they won't actually teach you until they leech every grand they can out of you with upsells of further "masters courses" and seminars and mentoring etc.

    Now I'm back to option spreads again after three years. The main thing is timing the adjustment. If you adjust too late, it's too late. You don't want to adjust if you can't help it because while you have a better chance of ending up positive, usually your theta differential is smaller by expiration so you can make overall less profit max. . The second main thing is picking the underlying(if you trying a spread on a liquid stock; indexes are more popular for "consistent" monthly "income" option spreads) and finding one that is likely to stick to a range in the next month until expiration or so.

    And that comes with some directional trading (or papertrading and/or backtesting) experience. so I'd recommend learning some fundamental price action somewhere. there are threads here on ET that cover all those and recommend where to go.

    One could just use delta neutral strategies (Iron Condor, Calendars, etc.) without learning price action or no experience in attempting directional trading maybe, but having learned something about directional trading , candlesticks and price action can only help in seeing what's going on and being better able to see probable price movement in the future with some degree of success than being completely blind to future price movement.

    As for being a good stock trader vs. options. A good stock trader can also use single "naked" options that are not spreads to add leverage to his directional play, as a substitute for buying or shorting the stock outright. Of course that entails more short term risk along with theta decay. You also get a bottom max loss which is about the same as your initial cost of doing the naked option trade , but it can be very big depending on your risk level and amount of option contracts one chooses. See Neke's thread on his "2011: Battered Account". He seems to trade directionally with big option positions.

  5. Do you have a system for writing options, or were you planning on selling and just hoping the underlying doesn't move? i.e., do you have an exit strategy?
  6. rew


    You don't <i>have</i> to be good in trading the underlying to be a good options trader but it sure helps. After all, nearly every option trade a retail trader does has a directional component. The only pure volatility trades are when a position is fully delta hedged, and market makers are pretty much the only ones who do that.
  7. Any successful trading requires a successful strategy and a competent trader. A successful system will still lose money when used by an incompetent trader. The most likely part of the system to break is the trader. If you used a successful strategy but lost money, I would be concerned about trading any financial instrument.
  8. jb514


    I would say yes. Too many people look to options as a way to make money without knowing anything about the market. The only way to make money is by having some idea about what is going on.
  9. Thank you all for your comments.
  10. Unless you're trading volatility, you're going to have to have some idea about direction... or lack thereof. If you never made money with stocks, writing options isn't likely to be the road to success.
    #10     Jun 28, 2011