Hi, Been a longtime Elitetrader reader, but this is my first post. I've been thinking about going fulltime next year, depending on how I do till about the end of 2009. I wanted to put it out to you guys so you can tell me if i'm being too optimistic or anything else you want to share. I write options on futures, mostly commodities, currency and financial futures. Since the beginning of the year I have been averaging a bit more than 1% a month...this I feel can 'easily' be increased to about 2-5% a month. I started out shooting for just 1% since I am extremely risk averse and didn't want to risk too much on a strategy that was flawed. The idea was too increase volume as I get more comfortable with the nuances of my strategy. So my question is this, is it possible for a trader or more specifically an option writer to consistently take out about 2-5% a month from the market? I'm planning on starting with an initial account size of about 100K...is this too little to start with? Thanks in advance!!
1) Yes, it's possible to generate 2% to 5% monthly returns via option writing but you'll have to monitor your positions more closely as you increase your position size. 2) Instead of option writing, you may be better off daytrading highly-liquid futures in order to minimize slippage that will occur with more frequent option trading AND so it's easier to have no open overnight and over-the-weekend positions on your statement. That way, you'll be able to sleep better and not constantly be concerned about adverse movements against your positions. 3) A $100K account is "sufficient". Each 1% gain per month will produce $1,000 per month of income. Can you live on that in the short-term? Do you have other sources of income to pay bills? How deep are your pockets? 4) Try to start sooner rather than later. Your method might be exposed to better-than-average conditions now which may diminish by the time you go full-time.
Percentage of return really isn't relevant imo, as opposed to flat out how much you can or will be making in a month. I make a high percentage return by most standards but not necessarily much money because I don't use much money. It all depends on how quickly you rotate your money, and what kind of volatility you're getting in at (and how volatile the volatility premium is as well), and if you're making any on market direction. I'd probably be more focused on how much you are averaging per trade after commisions over the course of months. That way you can estimate how much more you may average given how much more you expect to trade. It doesn't necessarily make a lot of sense starting when you're only making $1k a month right now if you're not expecting to trade a lot more because that's a rather unsustainable livelihood for any business, muchless an unpredictable one like this.
Actually I was off on referring to how much you're making per trade, since you're selling premium and holding positions for a while. Return for you if I'm not mistaken would be very affected by how much premium you're selling, how many delta's of risk you're taking on, and how often you're adjusting your position when the market moves. Timing of when you're selling it is always important too, to take advantage of volatility premium bursts. You're probably going to make money most of the time with an occassional hard hit that needs to be factored in, which is typical of premium sellers.
What was before beginning of this year? Did you trade successfully too and which performance could you generate on a monthly basis? Are you new to options writing? Did you ever get a hard kick in your balls? Can you take one? 100k is enough money to trade with, 1-2% a month performance probably not. If you can average 1% you can also average 10%, there is no difference unless you have big drawdowns that dont allow you to trade within your comfort level in case of upsizing. If thats the case than your accountsize is FAR too small. I suspect that you look back at the last 4-5 month now and try to project the future based on that. My advice is that you get your performance to between 5 and 10% first for a year or so and then consider again to go fulltime. And dont forget, one day the kick will come. Be ready.
Thanks for all the responses, very informative...and not as harsh as some of the other threads i've read on here. I'll try to answer the questions put forth, if I have forgotten any one please send me a reminder... Before this year I was a swing/position stock trader. This never really panned out like I expected, something with it never really sat with well with me. I guess I didn't have the personality for it or hadn't found a good strategy that my psyche would allow me to trade. About a year ago I read a book about selling options for a living, this seemed to make a lot of sense to me. More importantly it seemed to be more in sync with my personality. So, I decided to test out my strategy since the beginning of this year. I hope I don't get too sharply criticized for this, but I really don't understand the 'greeks' as they are called. I use some kind of a pivot a system. First I try to establish a bias in the instrument i'm trading...usually there is always a trend (at least in my mind) at a daily or weekly level with varying strengths. Then I sell an option about 3 pivot points out with the trend (i.e. sell puts in an uptrend). I also don't use stops. I buy to close a position as soon as the 2nd pivot is pierced. I guess so far I haven't had a 'black swan' event occur yet, this i'm not sure how to handle besides diversifying and just accepting the hit as part of the business. Please feel free to correct any of my thoughts or assumptions in this matter. Thank you.
I believe it was "The Complete Guide to Option Selling"...can't recall the authors though, but I think Michael Gross was one of them. BTW, someone mentioned looking into Bright Trading. I looked into this and it looks like Bright is only for daytraders. It doesn't seem to allow traders to sell options and hold overnight positions.