SteadyOptions is an options trading forum where you can find solutions from top options traders. Join Us!

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

Mastering the Art of Options Trading: Tips for Small Accounts


Growing a small trading account with options can be a challenging task, but it is definitely achievable. When I began my journey in trading options, my goal was to double my small account every three months. However, I quickly learned that taking excessive risks without proper risk management would only lead to starting over again and again by adding new funds to my account.

I experimented with various strategies that mainly involved long options, which would eventually depreciate and eat away at my capital.

 

How to start trading a small account

Starting to trade options with a small account can be a daunting task. I remember spending long hours at work thinking about how I was going to make a living trading, but I only had less than $5,000. Achieving my goal felt impossible, but I didn't have any other viable alternatives. I did not want to work until I was 80 which was my current path as I lived paycheck to paycheck and had credit card debt. I did not want to lower my expenses and live a minimalistic lifestyle, as my wife and I wanted to start a family. Starting a business was another option, but I enjoyed my job, which paid well and offered a flexible schedule. Besides, it was a family business, and I might run it one day, but that was too far into the future.

 

So, I decided to keep learning about options trading. I remember spending countless nights sitting at my desk, studying options until I fell asleep. I refused to settle for a mundane 9-5 job and retire at 65 with a regular income. I knew that if I could master options trading, I could create not just money but time. My ultimate goal was to be able to do what I wanted, when I wanted.

 

Through my experiences, I learned that until I could get my account to a higher level like $30,000 it's acceptable to take on higher risk. I could be long options as long as I had a way to finance them and hedge against potential losses. I aimed to maintain a good win rate and ensure that my winning trades were larger than my losing trades. In my search for an effective strategy, I scoured the internet and experimented with various ideas.

 

Strategies for small accounts

One day, I stumbled upon earnings-type strategies and was intrigued by the predictable upcoming events where options prices would depreciate differently than usual. This inspired me to delve deeper into the dynamics of option prices during earnings and consider the possibility of buying options before the event and selling them before the price depreciation occurred. After conducting thorough back tests and analyzing the data, I found a consistent way to exploit this edge and implement it in my real account. 

 

There are many strategies and techniques that traders can use to improve their chances of success, and one of them is to focus on maintaining a higher than 50%-win rate while maintaining larger winners than losers.

 

The key to success with this approach is to ensure that your winning trades are larger than your losing trades. This means that when you do experience losses, they are kept to a minimum, and when you do win, you maximize your profits.

 

Another important factor to consider is the ability to take advantage of surprise moves in the market. Many trading systems fail when unexpected events or sudden market moves occur because they are not designed to handle such situations. However, with a system that has an asymmetric reward structure, you can capitalize on these opportunities and potentially generate significant profits.

 

One way to implement this type of system is by using options trading strategies that allow you to benefit from sudden market moves while limiting your downside risk. For example, you could use a long straddle or a long strangle strategy, which involves buying both a call and a put option.One thing I do is go long a strangle for a discount in order to move the probabilities up.

 

When an unexpected event occurs and the market experiences a sharp move in one direction, one of the options will likely expire worthless, but the other will generate a significant profit. This allows you to benefit from the surprise move while limiting your potential losses.
 

Useful tips for small accounts

Here are some thing I look for when trading a small account:

  1. Risk management: Managing risk is essential when trading a small account. Avoid taking large positions that can wipe out your account in case of losses.
     
  2. Liquidity: Always look for highly liquid options to avoid being trapped in positions.
     
  3. Options strategies: Opt for options strategies that offer a limited downside risk and an asymmetrical reward profile.
     
  4. Win rate: Aim for a high win rate, ideally over 50%, to ensure consistent profits over time.
     
  5. Position sizing: Properly size your positions based on your account size to minimize risk and maximize returns.
     
  6. Timing: Consider the timing of events such as earnings releases, as they can provide opportunities for profitable trades.
     
  7. Market conditions: Keep an eye on market conditions and avoid trading during periods of high volatility or uncertainty.
     
  8. Patience: Be patient and wait for high-probability trading opportunities to come along. Avoid forcing trades just to make something happen.

 

It is important to note that the method I use to grow my small account is not the only approach that can yield success. However, since January 2022, I have implemented a proven strategy that has yielded positive results. Therefore, I recommend using similar principles to those that I have deployed. The following numbers from my real account serve as evidence that these principles can work.

 

Since January 2022, I have successfully turned $5,000 into $9,200 by utilizing this earnings-based strategy with a good win rate of over 50% and asymmetric returns. This strategy like many other small account strategies comes with higher-than-normal risk as my account has drawn down from peak to trough over 46% since inception in January 2022.

 

Bottom Line

Growing a small trading account with options requires discipline, proper planning, and risk management. It is essential to focus on strategies that offer limited downside risk and an asymmetrical reward profile, maintain a high win rate, properly size your positions, and be patient. By following these guidelines, traders can achieve their goals and grow their small trading account with options.

About the Author: Karl Domm's 29+ years in options trading showcases his ability to trade for a living with a proven track record. His journey began as a retail trader, and after struggling for 23 years, he finally achieved 
consistent profitability in 2017 through his own options-only portfolio using quantitative trading strategies.

After he built a proven trading track record, he accepted outside investors. His book, "A Portfolio for All Markets," focuses on option portfolio investing. He earned a BS Degree from Fresno State and currently resides in Clovis, California. You can follow him on YouTube and visit his website real-pl for more insights.

 

What Is SteadyOptions?

12 Years CAGR of 127.5%

Full Trading Plan

Complete Portfolio Approach

Real-time trade sharing: entry, exit, and adjustments

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Subscribe to SteadyOptions now and experience the full power of options trading!
Subscribe

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • The 7 Most Popular Cryptocurrencies Right Now

    There are thought to be 20,000 cryptocurrencies currently in existence. While a lot of these are inactive or discontinued, a lot of them are still being traded on a daily basis. But just which cryptocurrencies are most popular? This post takes a look at the top 7 most traded cryptocurrencies.

    By Kim,

    • 0 comments
    • 843 views
  • Harnessing Monte Carlo Simulations for Options Trading: A Strategic Approach

    In the world of options trading, one of the greatest challenges is determining future price ranges with enough accuracy to structure profitable trades. One method traders can leverage to enhance these predictions is Monte Carlo simulations, a powerful statistical tool that allows for the projection of a stock or ETF's future price distribution based on historical data.

    By Romuald,

    • 1 comment
    • 6,617 views
  • Is There Such A Thing As Risk-Management Within Crypto Trading?

    Any trader looking to build reliable long-term wealth is best off avoiding cryptocurrency. At least, this is a message that the experts have been touting since crypto entered the trading sphere and, in many ways, they aren’t wrong. The volatile nature of cryptocurrencies alone places them very much in the red danger zone of high-risk investments.

    By Kim,

    • 0 comments
    • 1,689 views
  • Is There A ‘Free Lunch’ In Options?

     

    In olden times, alchemists would search for the philosopher’s stone, the material that would turn other materials into gold. Option traders likewise sometimes overtly, sometimes secretly hope to find something which is even sweeter than being able to play video games for money with Moincoins, that most elusive of all option positions: the risk free trade with guaranteed positive outcome.

    By TrustyJules,

    • 1 comment
    • 17,539 views
  • What Are Covered Calls And How Do They Work?

    A covered call is an options trading strategy where an investor holds a long position in an asset (most usually an equity) and sells call options on that same asset. This strategy can generate additional income from the premium received for selling the call options.

    By Kim,

    • 0 comments
    • 2,935 views
  • SPX Options vs. SPY Options: Which Should I Trade?

    Trading options on the S&P 500 is a popular way to make money on the index. There are several ways traders use this index, but two of the most popular are to trade options on SPX or SPY. One key difference between the two is that SPX options are based on the index, while SPY options are based on an exchange-traded fund (ETF) that tracks the index.

    By Mark Wolfinger,

    • 0 comments
    • 7,263 views
  • Yes, We Are Playing Not to Lose!

    There are many trading quotes from different traders/investors, but this one is one of my favorites: “In trading/investing it's not about how much you make, but how much you don't lose" - Bernard Baruch. At SteadyOptions, this has been one of our major goals in the last 12 years.

    By Kim,

    • 0 comments
    • 4,274 views
  • The Impact of Implied Volatility (IV) on Popular Options Trades

    You’ll often read that a given option trade is either vega positive (meaning that IV rising will help it and IV falling will hurt it) or vega negative (meaning IV falling will help and IV rising will hurt).   However, in fact many popular options spreads can be either vega positive or vega negative depending where where the stock price is relative to the spread strikes.  

    By Yowster,

    • 0 comments
    • 6,683 views
  • Please Follow Me Inside The Insiders

    The greatest joy in investing in options is when you are right on direction. It’s really hard to beat any return that is based on a correct options bet on the direction of a stock, which is why we spend much of our time poring over charts, historical analysis, Elliot waves, RSI and what not.

    By TrustyJules,

    • 0 comments
    • 3,869 views
  • Trading Earnings With Ratio Spread

    A 1x2 ratio spread with call options is created by selling one lower-strike call and buying two higher-strike calls. This strategy can be established for either a net credit or for a net debit, depending on the time to expiration, the percentage distance between the strike prices and the level of volatility.

    By TrustyJules,

    • 0 comments
    • 5,004 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs