Can Options Trading Make You A Millionaire?
Can Options Trading Make You A Millionaire?
This is one of those questions that I hear from people new to options trading all the time and it is not an easy question to answer in my opinion. Sure, options trading can create millionaires and many, including myself, have made over a million options trade. However, can options trading make YOU a millionaire?
In a way, asking this question is as good as asking questions like:
Can Stock Trading Make You A Millionaire?
Can Futures Trading Make You A Millionaire?
Can Forex Trading Make You A Millionaire?
Can selling hamburgers make you a millionaire?
Can collecting coins make you a millionaire?
The answer to all these questions is a resounding YES.
The problem is, can you become a millionaire by doing these things that have made other people millionaires?
First, let’s find out the theoretical possibility of earning a million through options trading. Let’s say you have $ 5000 to start trading options and you average 50% per trade and capitalize on your profits. Here is the status of your account after various operations:
After the first trade – $ 7500
Second – $ 11,250
Third – $ 16,875
Fourth – $ 25,312.5
Fifth – $ 37,968.75
Eighth – $ 128,144.5
Fourteenth – $ 1,459,646
As you can see, it only takes 14 trades with a 50% profit per trade, which is not much in options trading, to turn $ 5000 into a million. If you do just one of those trades per month, it will only take you a little over a year to become a millionaire. As such, becoming an options trading millionaire is clearly not out of the realm of possibility and is clearly very fast if you get it right.
That brings us to the next question: can you produce a run of 14 consecutive wins at 50% per win? Clearly, there is no easy answer to this, either. I’ve heard of extremely lucky people who have done that before, but it’s clearly not something that applies to everyone.
Yes, in my 15 years of options trading, I must say that I have never seen anyone make a series of 14 wins in a year or two without losing, no matter what options strategy they use. The good news is that you don’t need to make 50% of each profit or a string of 14 profits to make a million in options trading, as long as you follow a sensible trading methodology and have a lot of patience.
Making a million in options trading is not about not losing. It really is about making more wins than losses. As long as you have the means to consistently get more wins than losses, you can win a million on anything as long as you have the patience to stay in the game. Yes, this is the same logic in any form of negotiation.
If it is the same in any form of trading, why then options trading?
The beauty of options trading is that it actually helps you achieve more profit than loss through 2 unique means; Convexity and versatility.
Convexity means being able to potentially make more money than you can potentially lose. In futures trading or stock trading, you can potentially lose as much money as you can earn. When the stock goes up $ 10, you make a $ 10 profit, and if the stock goes down $ 10, you have a loss of $ 10. There is no convexity. When you buy options, their value will increase as long as the stock keeps going in the right direction (up for call options and down for put options), but if the stock goes in the other direction, you will only lose as much as you do. . used when buying options, nothing more! For example, if you bought a call option contract for a share for $ 150 and the stock went up $ 10, the call options would be worth $ 1000, but if the stock went down $ 10, you would only lose that $ 150 that you used. That is convexity. As long as you use only money you can afford to lose or the maximum amount you are willing to lose in a single trade to buy options, you will always have the advantage of convexity on your side.
The versatility is in the wide range of option strategies that can be combined. Many option strategies allow you to profit not only when the underlying stocks move in one direction but in multiple directions! Yes, in futures or stocks trading, you only make a profit when stocks go up or down (when you are short on stocks or futures). However, in options trading, there are option strategies that allow you to profit when the stock goes up or down in both directions and option strategies that even allow you to profit from all 3 directions. Yes, being able to make a profit in more than one direction greatly increases your chances of winning and greatly improves your chance of consistently making more profit than loss.
So can you become a trading options millionaire? If you can. In fact, from the convexity and versatility properties mentioned above, options trading could make it easier for you to become a millionaire versus trading stocks or futures. As such, the possibility is there and the odds are in your favor. The last question to answer is, do YOU have what it takes to become a millionaire through options trading?