For those looking for a new way to diversify their portfolio other than stocks, mutual funds, or bonds, trading options could be a wonderful idea. Once you’ve looked into trading options and have decided to go down this route, you might be wondering how much you can make trading options. This is a very intricate question. It depends on you and your ability to understand the process and strategies that go into trading options.
Our team at Capitalist Exploits has a lot of experience in this area, and they want to give you some great information so that you can understand why trading options is a good choice, how to choose the right one, as well as answer your core question of how much you can make trading options.
So if you’re interested in this, keep reading and we will share all this information and more with you.
Why Trade Options?
Whether you’re new to investing and trading or have a wealth of experience, most of the time, those stepping into options trading are looking to hedge open positions or predict price changes in assets. But when you’re looking at this as an option, you probably want to understand the advantages that you get by choosing it.
Frequently trading options are more cost-efficient and have a lower risk than some of the other investment options. On top of this, they have a history of yielding higher returns which is always great when you’re looking to make money or invest in your future.
Along with this, there are a wide number of strategic alternatives that you can use when trading options. This versatility means you are more able to curate your style to your own personal preferences.
Which One? Choosing the Right Option
When it comes to trading options, there are a bunch of different types that you can look at. But to choose the right one, you have to understand what to look at and so here are some aspects of the options you should look at before making your choices:
- Bullish/Bearish – The first thing you have to understand is your style. Are you bullish or bearish? By really diving deep into your trading style, you will be able to choose the right strategy and the right trading options for you.
- Volatility – You want to look at the market you’re looking to invest in and determine whether it is volatile or not. If a certain option hasn’t implied very high volatility, then you might opt to buy calls on that stock because this might be more cost-efficient. Understanding volatility can help you make smart investments.
- Strike Price/Expiration – You want to make sure that you are comfortable with the idea of strike price and exploration. Looking at the trading options, you’ll want to decide whether purchasing something at a higher strike price is worth it when it comes to the offset. Understanding this and being in tune with your particular style will allow you to make the right trading options.
How Much Can You Make Trading Options?
So now that you have an idea of how to choose them and why options trading is such a viable option when it comes to investment, let’s look at how much money you can make trading options. The truth is it really depends on the account size and the trading strategy you have chosen. Some people have been able to make 20 to 50% more than their investment on any given trade.
Looking at this kind of number means that when starting, you would ideally need to have at least $5000 in your account. Understanding that one option controls about 100 shares of whatever market you’re looking to invest in, you can understand why it’s hard to really pinpoint how much money you can make.
Instead of focusing on making money, you need to focus on trading the markets. There will be ebbs and flows of cash that come in, and there’s no guaranteed income that comes from this investment process. Some people will make several thousands of dollars while others lose several thousands of dollars. You have to be willing to take those risks.
Mistakes to Avoid When Trading Options
For those that are looking for a strategy that can help you be successful when you’re trading options like with anything else, some mistakes can be avoided to help reduce the risk.
Here are some mistakes that our team of insiders think could help you avoid pitfalls and trading options and make it more likely for you to be successful financially.
OTM Call Options
OTM call options always seem very appealing to new options traders because they don’t have as high of an entry price as others. The truth is that this is one of the more difficult options to go with, and so it’s not necessarily the best choice when you’re first starting out.
Not Getting Leverage
You have to understand the idea of leverage when it comes to option contracts. A lot of the time, options traders think that this means that there’s no risk in this investment. The truth is there is a risk though it may be less than other equities when choosing options as your investment avenue.
No Exit Strategy
The trick with any type of investment is to be able to hone in your emotions and not react too quickly. In other words, one of the biggest mistakes made is not creating a plan and sticking to it. But even with this, when you’re creating your plan, you need to have some sort of exit strategy. Many of our experts suggest having both a positive and negative exit strategy so that you can react without emotions playing a part.
Not Willing to Try New Strategies
There is a wide range of strategies you can use when dealing with options trading. Many traders get stuck in one of these and refuse to step outside their box. This is a mistake because some strategies will work best with certain options, and others will work best with others. So being able to mold your style into different strategies is key to success.
Not Looking to Upcoming Events
Some events that happen within the company and the industry you’re looking to trade in can affect the price and volatility of the option. A lot of people make the mistake of simply looking at the numbers and analyzing those and not looking ahead to events that could do just that. So when you’re looking at your options, if you want to be successful and make money, you need to dissect these and make predictions based on them.
Final Thoughts
Understanding that there is no guarantee to make a specific amount of money is essential. There will be times when you will make thousands of dollars and other times where you come up even or even lose some cash. By being able to choose the right options and avoid mistakes, it is more likely that your options trading will be successful.
To do this, though, you have to stay up to date on the market, so if you’re interested in that, make sure you check out our newsletter, Insiders Newsletter.