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Trade for a Living

Let’s first clarify one important point:  Options Trading is inherently risky.  All sensible knowledgeable traders must remind any new candidate that markets can be treacherous at times (cf. disclaimer on footer below).  There is ample documentation on the Internet about fat tails distribution of returns, how statistics are flawed etc.  Yes, the market can be an uncontrollable beast, and any apprentice trader must first accept that fact prior to any decision to trade for a living or simply as a part-time hobby to generate an income supplement.

Trade for a living

Can traders survive severe market shocks ? Is it possible to trade successfully for 10, 20 years or more ? Yes, of course but are you ready for it?  Are you ready to learn with discipline ? Can you align with the method, the strategy you trade or wish to trade ?  OM may in the future expand in the psychology of trading department, but regardless whether you practise yoga, jog for hours or else, a balanced life, a clear mind with realistic expectations is quintessential to success.  Many traders weather the storms well thanks to impeccable risk management, and consequently make money consistently year after year.  We will review what makes a successful trader in the initial part of the course.

Hobby or full-time job ?

walking-towards-your-goal-300x225All new traders should make it a hobby to trade as if it was a full time job (and not the other way around !!!).  Trading options with Options Masters is no panacea (yet an exceptional time-saver) for a gradual learning curve over a period of 2 to 3 years after which the hobby may turn into a full time job.  A hobby is not a pastime.  It requires discipline, dedication and a minimum 1-2 hour availability (3 or 4 recommended in the beginning) each single trading day.  In EMEA time zones, trading the US markets may not affect your daily job but it can impact your social / family life !

Any financial advisor would recommend not to invest more than 20% of your cash assets into options trading, so do your calculations to see how much you are willing to invest as if you were willing to delegate the management of part of your portfolio.  As time goes by, the acquisition of knowledge and experience will move the cursor to a higher ratio again in line with your lifestyle, assets and expectations.

There is also a fine line one needs to keep in mind: Training is certainly a long-term investment but it is first a cost, i.e. it should not dent your monthly budget or affect your lifestyle.  Secondly, while OM will assist every student long after their training course venturing into strategies that are not extensively covered e.g. directional, gamma scalping etc remains at his/her own discretion and risk.  OM shall always remain focus on sound consistent income trading techniques that are as little speculative as possible.

Managing Risk

Managing risk is central to OM’s approach.  OM does not provide financial recommendations nor does it cover any theory on portfolio management.  Risk management is however extensively studied for each strategy, be it Weirdor, M3 etc.  Risk is estimated in terms of probability of success, return expectancy and other statistical measurements using market volatility as an essential benchmark.  That said, even the most stringent backtesting cannot fully replicate all possible events.  While the markets do have a number of built-in controls, we would like to remain aware of recent events like the 2010 flash crash.  Risk management is analysed in depth in all OM courses.

Realistic expectations

TrackAlthough this may sound outrageously high for someone new to options, the historical gross performance (i.e. excluding any applicable management fee) for the main “bread & butter” strategy is stable at around 3.3% per month as calculated on a rounded margin of $20,000 per tranche on a Reg T account, i.e. $600 on average.  The one standard deviation to average monthly return ratio is currently around 1.  The picture on the right is an actual track record.

It is however recommended not to depend entirely on a single strategy no matter how reliable it is hence we recommend addressing 2 or 3 strategies as quickly as possible.  Within a year, a OM student can learn several strategies and decide whether to take on the path to make it his or her main occupation.  In the interim, it is meant to be an income supplement.  Note that performance can be increased on a PM account, where margin calculation is optimised across positions.  Each student is advised individually according to his or her portfolio size and income expectations.


Questions ?

Best is to contact us for a free assessment and plan forward.

Check the Menu on the top right for other OM features, or go back to the main page, or move on to the next topic “Earn While You Learn“.

This post is also available in: French

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