It's not really a question of upside/downside, its how much risk you can take based on your situation. If you're supporting a wife and three kids, and really need good health insurance, perhaps best to be that family man on salary and not play the market--at least not full-time. Personally, I am single with no kids, renting a cheap apartment, and don't have a car. With relatively little responsibility, and total monthly expenses around $2500 (including beer money!), I can afford more risk than most. If I can average just $160 a day, all my expenses are covered--including taxes--and my stake grows. That's why I'm now taking a swing at this. Crunch your numbers; if wifey is OK with it, and you want to go for it, then do it. Just beware that a few months is not a lot of time, and expect to take some losses as you learn. I'm not qualified to give advice, but my opinion would be to begin trading full-time in stocks that are beneath your means. Go for smaller percentage gains; if you can consistently make 0.5% on 200 shares of Nasdaq:MU in a day, that's awesome! That's 120% per year! It's about $20, but profit is profit! If you lose 0.5%, meh, it won't kill you. On the other hand, leverage up to a full 4:1 and lose that 0.5%, and you'll be crying... drinking... probably both. The point is to make your mistakes on smaller stocks until you get your game together. You don't want to learn about how forward guidance, earnings announcements, FDA drug rulings, and all sorts of things can spike the market against you when you're leveraged up to the max!
I vote for Option 1 but training yourself very hard with Option 2 evenings and weekends. It is doable - I've had plenty of clients do it and that's a fact. I really don't like the idea of negative cash flows while learning and fine tuning a trading system - it's too much pressure and the time element will be working against you unless you have considerable bank at present and no living expenses to speak of. I worked for a utility as an engineer, and I absolutely hated the job and the people. I traded and trained and learned off-hours. So, I can relate to your frustration. FWIW, I encourage my own clients in your situation to keep their "real jobs" and train with me for about a year. Even then, my advice is to open just a modest account and swing trade our system until their goals for career change are met. It is just too much pressure to go all in these days. Just my 2 cents, YMMV.