It's possible but it's highly unlikely. It's worth trying but there's no way to know if you'd be wasting your time because you don't know what your abilities are. To succeed in the market, you need an edge. For an investor, that might be fundamentals. For a trader, it might be technical analysis. One can trade patterns, Fibonacci, astrology, the news of the day, earnings announcements, intraday momentum, swing trade, skew, volatility, whatever. With options, you need to get an awful lot to make them work because there's so much working against you (larger spreads, time decay, and sometimes, illiquidity and implied volatility. In addition, you have to get the underlying right in some form (pick a direction or bet on neutrality). Part of their allure is the lower capital outlay, leverage and even the complexity of what you can do with them. And then there's that pesky little money management thing which pertains to all investments. Trading is a skill that takes honing so that you can react rather than ponder. Like chess, with options, you need to think several moves ahead, not just simply place a trade. You need to face adversity without emotion (panic) and think clearly while under duress. So my two cents would be to trade stocks in small amounts while learning the complexities of the chess game (options). Hone those trading skills. Build confidence. Learn your abilities and your limits. Start very small and increase size if/as your skills develope.
Wartrace, you said that you would be receiving unemployment for two years and that would cover all of your expenses. I assume you are aware that the unemployment compensation is taxable. Just want to make sure you are aware of this. Good luck. 4Q
SPIN has offered some very valuable advice. But I want to point out that there is a big difference between being a trader and an investor. SPIN is a successful trader. I'm a short-term investor, holding positions for a month or two. What do you plan to do? How are you going to be using options? You must hone the right skills for the type of trading you plan to use. It's very difficult to use options for very short-term trading. Mark
LOL... anything directional held overnight is an investment to me. And FWIW, I'm a lousy investor Yep, it's very difficult to use options for very short term trading. Some can. I can't ... Other than for earnings plays (spread offsets), I've found the slippage to be way too much and therefore I bang out the trades with stock. But it's not about me. I found what works for me. Others should look for the same for themselves.
I'm interested in credit spreads, selling an option and buying the next higher or lower for insurance. Bad idea?
No. Good idea. But it's not a good idea for day trading. To enter and exit, you trade four options, each with a wide spread. That's a lot of slippage. You can do some paper trading to see just how great the slippage is and how far the underlying must move to give you an acceptable profit. After all - that profit is your goal, so you should know what it takes to achieve it. OK, if you enter your orders as spreads and not as individual options, the slippage will be less, but (IMHO) still too large for effective day trading. You have your own comfort zone, but for me, I trades these spreads OTM and plan to hold for 2-8 weeks - but never all the way to expiration. Mark
It's possible only if you develop a directional edge in the underlying instrument in which case you will more often than not be better off swinging the underlying. If you are just randomly putting up verticals and condors there is no way in hell to achieve 4% monthly return. What you need to be asking is whether in 2 years you will have the skills necessary to consistently call direction right in relation to the risk you are taking.
Here's a strategy for selling credit spreads I learned from M. Williams at the PSE of Market Compass. They manage funds, and teach the market makers at the PSE. Buy your wings when they are cheap (low vol), and then let the market move, then sell your strike. Also, extra wings are good. So you can even finance your wings by selling at the ratio of 1/5 etc... then when it gets there, u have ammo. The bigger the ratio, the better. Example... xyz is at 45 bucks and u think it's going lower, buy 4 35 puts for .10 and sell 1 37.5 for .55 now you have ammo and you did it at a credit. You also have risk... If it moves down, you can do several things, you can sell out some of your 35's for a gain, or you can sell against them (better). At this point you buy more wings on the call side, you can finance them, or not up to you, financing is good, it's like getting free ammo. So you are buying when it's cheap, and selling when it's dear. Just thot I'd throw in a strategy for you... You can take a course at the PSE with marketcompass (last I was there it was around 3k) It's a very good course, I did it. They know their stuff. And they are traders. They teach solid strategies. They usually recommend beginners do stocks, and stick with 3 only.
I disagree. It's highly unlikely, but it is possible. Especially when lucky enough to find calm markets. That does happen. Mark
You can incrementally build positions by adding to each side if the underlying gyrates. For example, for many years I sold naked puts on gold stocks. I probably started 20+ years ago. I noticed that they would often trade in a box for months at a time. I wanted to do larger size but I didn't want to have a lot more directional risk so I started doing spreads. If 10 naked was my comfort zone, I'd try to start with 10 short. If I caught the move, I'd add 20 long which were now much cheaper than had I done the spread initially. Now I'm net 10 long. With another reversal, I'd add 20 short. I was never more than net long or short and could get into the 100-150 spread zone without fear of a big reversal hurting me.