Tl;dr. Options are great investing and trading vehicles but have a litany of pitfalls. I’ve personally used them to generate a lot of my wealth however they haven’t been my ONLY tool. The purpose of this post is to share some concepts that I think are useful for new traders and those creating wealth to keep in mind.
It is, insanely unlikely, that you’re going to trade options on your <$100K account into your future wealth. I know most see that and say, holy shit $100K are you kidding? I could LIVE off of that. Perhaps, if you want to live a fiscally strapped life.
The average American spends $66K per year (https://www.bls.gov/news.release/cesan.nr0.htm), that’s AVERAGE. Aka not what any of us aspire to that are actively trading. The average American also maintains $21K in auto loan debt, $5K in credit card debt, $220K in a mortgage, $39K in student loans, for an average total debt of $99K (https://www.bankrate.com/personal-finance/debt/average-american-debt/#average-american-household). Average by all accounts sucks and is nothing to “reach for”.
The average robinhood account is $4K and the average fidelity account is $240K (https://brokerchooser.com/education/news/data-dashboard/brokerage-account-sizes#avarageaccountsize). Let’s say you’re a phenomenal options trader and can return 30% per year consistently, this would outperform warren buffet, George soros, etc. The star robinhood trader would yield $55K after 10 consecutive years of 30% per year performances.
So what’s the point?
1. It is absolutely imperative that new traders SAVE. That is going to be the largest determinant of your future success. If that same RH trader saved $1K per month at that astronomical 30% return, they’d have $567K.
2. Reality sucks but it’s a pill we all need to swallow. Most of us want to think we’re the game changer and able to do what others can’t. Perhaps. But are you willing you bet your future wealth on that unknown?
3. Right after saving, creating MORE INCOME is essential. This increases our savings rate and supplements the rapid growth of more “normal” market beating returns of 15% up.
I want you guys to do well. I want people to find their way and create life changing wealth. I never would’ve known what was possible if I didn’t have people sharing realistic information with me. I’ve spent over 30,000 hours learning and trading options since 2007 (I started while in high school with 3K) it was my initial wealth development vehicle but if it wasn’t for including real estate (commercial and residential) and angel investing, I’d still have my nose to the grindstone.
Options trading is great but remember to integrate these other concepts, sooner rather than later. Save, more income, other investments. Average sucks.