success rate for option traders?

Discussion in 'Options' started by mynd66, Dec 24, 2008.

  1. mynd66


    Only around what, one or two percent of traders (short term) are successful right? And then some can only break even and most all fail... so is there a statistic or at least a concesus on option traders? I figured any joe can open an account and learn to hit the bid or ask and blow the acc in no time. But for someone to venture into options takes a little more understanding and patience than your typical get rich quick mentality usually strives for. So I was just thinking maybe option traders in general would have a higher success rate. Any thoughts?
  2. Options are different. But it's still trading. To succeed as an option traders you require essential trading skills and discipline.

    Then there are numerous possible strategies you can adopt. There's the gambler who buys options and who has little chance of long-term success.

    Then there's the naked seller who enjoys such frequent profits that at some point he sells too many options at one time, and gets destroyed.

    Then there are those with so much confidence they feel they can trade now and pick up some pointers later.

    To have a chance at being a winner, it's essential to learn how options work before you get started. Read, ask questions, visit free web sites etc.

    So, there is no reason to expect option traders to do any better than stock, commodity or forex traders - unless they truly take the time to learn how to use options as a risk-reducing, profit enhancing tool.

  3. I don't know about the statistical success rate of options players, but I would say it's similar to equity trading, depending on how you "trade" it.

    The one thing about options is that it is inherently a trade, you can't really invest in them like equities/bonds. The holding period is confined due to time decay.

    Personally I would learn to grab a handle on equity trading and then jump into option trading as all you have to add onto it are the greeks.

    Good resource with some interesting articles to read:

  4. spindr0


    I'd second that motion. If you want to be a trader, get equities down first. They will hone your skills and reactions.
  5. I follow what you're saying. Options seem more complex and therefore not as "easy" as stocks, so the average (unsophisticated) investor will shy away from options.

    That's a tough question to answer, but it seems logical that a sophisticated investor who puts in the necessary time to learn a new craft will always do better than the "buy low, sell high" crowd.
  6. I always thought it was the other way around. I thought options were the easy way out. unlimited upside and limited downside has to move the odds into the option traders favor. You're right though, the odds are stacked against the trader.

    I suppose someone who's a bit more knowledgable on this should chime in.

    I've been successful in my small account though as stated in my other thread.
  7. spindr0


    I think that the odds are stacked against the inexperienced option trader. B/t spread slippage and delta being less than one, you have to be more right than wrong. Add to that some time decay and IV variations and you have a tough nut to crack. Without some edge, most are going to have a tough time with options. Luck won't cut it in the long run.

    And FWIW, I believe that money management is essential regardless of what you're trading. Placing a trade is the easy part. Locking in profits and cutting losses is the real work.
  8. dmo


    By that logic, buying lottery tickets is a sure winner. Tens of millions of dollars upside, $1 downside. But despite the attractive appearance, lottery tickets are overpriced and so lottery ticket buyers as a class lose money.

    Whatever the bet may be - an option, a lottery ticket, or whatever - it has a fair value. The trick is to sell over fair value and buy under fair value. Or better yet, simultaneously buy one bet and sell a related bet at a more inflated value.
  9. You are ignoring the most important factors. Sure you can make a lot and lose a relatively small amount when you buy options, but the fact of the matter is that you are going to lose far more often than you win

    And when you do win, who's to say you will hold on long enough to make it a huge win. And don't forget, if you do hold, looking for that huge win, your profits can disappear in an instant.

    When you buy options, you must be correct on directing, timing, and size of move. The odds are stacked against you. To compensate you must be a very good stock picker and timer.

    Your way of thinking is one that sadly does not lead to long-term success when trading options.

  10. lol thanks for all the compliments then.

    Curious. Do you trade options? You're right. But if you can do all that, why not use them for the leverage? Granted you can do that of course......
    #10     Dec 25, 2008