SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

How Much Do You Need To Trade Options?


How much capital do you need to start trading options? This is a question I get asked a lot (along with “are 5%-10% per month returns realistic…). When starting out in options trading, it is definitely advisable to keep risk small and not start trading a large account straight away.

I was speaking to one trader the other day who had a $20,000 win with his first trade. I explained that this was almost the worst thing that could happen, because he started thinking “this is easy” and “if I can make this much when I don’t know anything, imagine what I can do when I get some more experience.”

Sure enough, this trader blew up his account not long after.

He was taking on too much risk without knowing how to handle it.

For new traders, it is much better to start with a small account size. Even if you have $200,000 available for trading options, just start with $10,000 and get a feel for how things work. Then, when you’ve been trading for a year or so, SLOWLY build your account from there.

You don’t want to jump from $10,000 to $200,000 overnight.

The psychological aspect of trading a $200k account is much different to a $10k account.

All of a sudden a 1% loss has gone from $100 to $2,000.

So, the big question is how much do you need to get started trading options?

I believe there is no real minimum.

You can start trading with $200.

The experience you gain will be with you for a lifetime, so the earlier you get started the better.

That being said, there are certain strategies that will not be available to you with only a small amount of capital.

Iron condors for example will be hard to trade with less than $5,000.

Also, you need to keep in mind that commissions and fees are going to have a much larger impact on a small account.

Ideally, you want to have around $5,000 to $10,000 at a minimum to start trading options.Call Course

HOW TO TRADE OPTIONS FULL-TIME

To become a full-time options trading requires a big commitment both financially and mentally. As the old saying goes, “It’s the hardest way there is to make easy money”.

Trading is hard, there will be good times and bad times. Will you be able to handle the emotional upheaval the bad times can cause?

The first step to figuring out if you can go full-time, is to figure out how much you need to live off.

If you want to make it as a trader, you need to be prepared to live pretty frugally. We’ve all seen the images of hot shot traders driving Ferraris, but that’s not the reality for 99% of traders out there. Most full-time traders I know live very frugally.

First things first, you should audit your spending behaviour and see if there is anywhere you can cut back without sacrificing your lifestyle.

The next step is to build a track record over a few years and figure out what sort of return you can expect on a consistent basis. It would be good to have this track record through a variety of different market conditions. There are a lot of “bull market geniuses” out there right now, but how will they fare during the next bear market?

Let’s say you’re pretty confident that you can achieve 15% per year. If you can live off $50,000, then you need a capital balance of $333,333.33. If your results indicate you can only achieve a 10% return then you need $500,000 but if you can achieve a 20% return then you only need $250,000.

You can see there is a massive variation in the amount of capital needed depending on your returns.

The best bet is to build that track record and figure out what sort of return YOU can achieve. Every trader is different after all.

Also note, that I haven’t met many traders consistently earning over 20% per year (despite what all those internet ads tell you), and I’ve met A LOT of traders in the last 15 years. Your Options Trading

DEALING WITH LOSING MONTHS

Losing months are never fun for any trader, but they are a double whammy for full-time traders. Not only has your account balance gone down, you’ve also had to withdraw funds to live off.

So your account has taken a double hit, and now you need an above average return next month.

Can you handle that kind of stress?

Having a minimum account size that you’re aiming for is a great idea, but it might be worth waiting until your balance is a little higher than you think you need in order to safely handle those losing months.

Some traders will have 12 months’ worth of expenses set aside (outside their trading account) before making the jump to full-time.

Trading is a tough game, and if you’ve got the added pressure of needing to make a certain return to put food on the table only adds to that stress. Having some emergency funds put aside can help you focus on the business of trading.

ADDITIONAL EXPENSES

One thing a lot of people don’t consider is the additional expenses that can be incurred as a trader. Does your current employer cover your health insurance? Do they pay for your smart phone? Do they provide you with a fast computer? A gym membership?

All these things and more will be your responsibility going forward. If your computer breaks and you don’t know how to fix it, you need to pay a computer guy to fix it for you. Previously your employer would take care of all of this. Same goes for your phone etc.

Be prepared for some additional expenses when you work for yourself.Implied Volatility Calculator

CONCLUSION

Hopefully I haven’t stressed you out too much, but the reality is, you need a significant amount of capital before even thinking about becoming a full-time trader.

Those of you who have $50,000 and think you can go full-time, I’m sorry but it’s just not going to happen. Unless you’re a single guy who can live the backpacker lifestyle in Thailand.

But, trading is one of the most rewarding jobs there is. No boss, work from home, travel, the list goes on.

Stick at it, take it step by step and slowly build your account, and you will get there.


Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. He likes to focus on short volatility strategies. Gavin has written 5 books on options trading, 3 of which were bestsellers. He launched Options Trading IQ in 2010 to teach people how to trade options and eliminate all the Bullsh*t that’s out there. You can follow Gavin on Twitter.

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • 4 Directional Options Trading Strategies

    Some Option traders prefer to trade mostly non directional strategies, while other option traders prefer to trade directional strategies.  Well, in the world of Options trading, there is no right or wrong answer. You can create a host of strategies based on your preferences and outlook.

    By Kim,

    • 0 comments
    • 84 views
  • Digging Deeper into the Inflation Threat

    Stoking the Embers of Inflation is one of the more important articles we have written. The Monetary Equation Identity discussed in the article provides a counterintuitive way to think about inflation. It took us a long time to accept that this identity lays out a real case for stagflation.

    By Michael Lebowitz,

    • 3 comments
    • 425 views
  • Does Option Selling Have Positive Expected Returns?

    Academic research refers to the persistent phenomenon of ex-post implied volatility (IV) exceeding realized volatility (HV) as the Volatility Risk Premium (VRP). As it applies to option premiums, this leads to a positive expected return for being a systematic option seller.

    By Jesse,

    • 0 comments
    • 202 views
  • Newton Technical Perspective 6/18/2018

    As we enter the third week of June, sentiment has steadily gotten more optimistic, with sentiment polls like Investors Intelligence having risen now for the 5th straight week, while Bears have dropped down under 18%.  The net plurality now stands at 35%, which is worrisome given that Equity put/call data has also dipped down to levels last seen in late January when equities peaked.

    By Mark Newton,

    • 0 comments
    • 631 views
  • Top 10 Things To Know About VIX Options

    VIX options use the CBOE Volatility Index (VIX) as its underlying asset. VIX options were the first exchange-traded options that allowed investors to trade the market volatility. VIX options can be used as a hedge against sudden market decline, but also as speculation on future moves in volatility.

    By Kim,

    • 4 comments
    • 206 views
  • How Hedge Funds Use Options

    Hedge funds and institutions have been using options to get market leverage for years. Warren Buffett has been known to buy calls and sell puts to get bullish exposure, and so has Carl Icahn. And recently I told my subscribers about a massive options trades that shows just how these big investors use options.

    By Jacob Mintz,

    • 2 comments
    • 303 views
  • Synthetic Short Stock – Higher Risk

    The synthetic long stock is a low-risk, highly leverage strategy. But for synthetic short stock, the risk profile is completely different. For the synthetic long, the combination consists of a long call and a short put, at the same strike, and at the same expiration.

    By Michael C. Thomsett,

    • 0 comments
    • 179 views
  • Trade Decisions: Risk or Profits?

    When trading, I believe very strongly that the best method for accumulating profits over the years is to ignore whether a specific position is currently profitable or is losing money.  When looking at any position, it's always necessary to make a buy/hold/sell decision.  Of course, for most option traders 'hold' wins most of the time. 

    By Mark Wolfinger,

    • 0 comments
    • 166 views
  • How To Protect Your Blind Side

    “The price of protecting quarterbacks was driven by the same forces that drove the price of other kinds of insurance: it rose with the value of the asset insured, with the risk posed to that asset.”  -Michael Lewis, The Blind Side. Counter-intuitively, that is often not the case in the capital markets.

    By Michael Lebowitz,

    • 0 comments
    • 823 views
  • How To Evaluate Options Trading Service

    I'm getting a lot of emails asking me to recommend an options advisory service. If you currently subscribe to an option trading service, or if you’re considering doing so, here are some tips how to select one. Those tips will help you to avoid some costly mistakes. 

    By Kim,

    • 0 comments
    • 242 views

  Report Article

We want to hear from you!


There are no comments to display.



Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Add a comment...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoticons maximum are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

Options Trading Blogs