Friendly Reminder for our Newer Traders
Tl:Dr - Day trading isn't the way. Stressing about circumnavigating PDT also, isn't the way. I know it's unpopular and I also recognize I also wouldn't have wanted to hear that when first starting off. My trading mentor went so far as to say don't touch options until you have $50K and I certainly did not listen to him. So I get it. However, I want to offer some of my experience and hopefully some of the other tenured options traders in here can weigh in. My goal is NOT to dissuade anyone from pursuing wealth as quickly as they possibly can - that's the entire point of this all. My goal is rather to try and interject some information to help people make an informed decision cycle. My argument is that by accepting a slightly slower than desired entrance, you're actually accelerating your desired outcome - primarily by removing unnecessary transaction costs and drawdowns. So, IS IT possible to make a shit ton of money, ultra fast trading options? Sure. It's possible. However, following the same decision cycle we should apply to our trading (expected return and capital growth) what's the probability? In short, it's very low. [Who Profits From Trading Options?https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3867129] Options are complex tools that take time to understand. Again, I know it's a huge drag but none of us thoroughly understand options even after 3 years of full time equivalent effort. I had my largest account drawdown after trading them for 5-6 years. Ways we can efficiently increase our understanding of options trading:
Remove the initial expectations. The likelihood of your $10K account turning into your future wealth is very low. However, the ability to continually SAVE and create consistent returns is very possible. It's a primary method on how I've created wealth.
Use a compound growth calculator: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator to assess your growth rate based on YOUR CURRENT SKILL. This means looking at your realized performance. Remember, streaky performance is common and can last several years. However, over the long run (10+ years) your returns will approximate to your "skillset". Be conservative in this estimate. If you put in 25% per year as your return, the heat is now FIRMLY on for you to perform, and if you don't have at least 6 years of that as your track record, you're already setting yourself up for problems. For context, the average trader - you can revisit the paper listed above but the vast majority LOSE money, they don't even pace the market.
Here's exactly what I'd do:
My approach to trading favored probability of outcome vs grossly accelerating timeframe. That being said, there were periods where I had a levered portfolio, so I still was aggressively pursuing returns. I did a careful timeline analysis with the initial goal of $1M liquid net worth before 30. I had a long runway as I was starting in high school. A KEY LEVER TO THIS WAS SAVING. But I planned conservatively because "making it" wasn't going to be left to chance, I wanted to ensure there was a high probability I'd hit my targets.
If I were to start again. Buy an index ETF like IWM or SPY. DCA a set amount MoM - the more the better. I'd implement a VERY SIMPLE trend following tool where if we drop below 150D MA, I'd flatten. Today with rates being fair, you can rotate to box spreads or bonds.
You could simplify all of this by just DCAing and sticking to that. It works well, time tested.
The purpose of that position is to alleviate the "wasting time" feeling I had. I didn't come from money and wanted to make as much money as possible as quickly as I could. I had a single mom and felt a lot of pressure to be in a place to support her alongside my own financial goals of being able to work for myself, buy things I liked, etc.
While that was working, I'd begin learning and PAPERTRADING options. This also is extremely unpopular because "nobody has time" for this. I didn't and would've faired much better if I forced myself to papertrade for the first year. Papertrading will NEVER fully replace the experience of trading your money. But it's a great way to get the process down, avoid the same stupid mistakes we all make (learning about liquidity the hard way, not checking for earnings first, premium chasing, etc) while still learning.
For papertrading, I'd start with the same strategies I've morphed into after doing this for 16 years: Ratio covered strangle (very similar to the wheel), ratio covered calls (Designed to maintain upside potential), ratio diagonals (calls and puts), straddles and strangles. Notice how verticals is not in this, nor are iron condors. I rarely trade either (unless I'm trading box spreads for the rfr, then I use ICs). These strategies "work" for small accounts but include concessions. Unless you're a great trader, it's difficult to make money after resort fees with these concessions.
After codifying what I was attempting in a trading plan and tracking the results in a trading log, once I had positive returns that made sense, I'd start to deploy those strategies with careful scaling protocols built in. There's nothing wrong with trading short-er duration strategies, for the past 3 years most of what I do is <30 days and a fair concentration within a week. However, that's not where I'd start if I were to star again. People mistake shorter timeframes with "security" but realistically they're some of the hardest timeframes to get right. By adding some time to our trades, we give ourselves more space - this is especially pertinent to options trading where, gamma, theta and volatility inputs grow teeth as we get closer to expiration. This start to move very fast.
Another important note is beyond trading and saving, other investing opportunities have been important aspects of my wealth development. I'm literally an all around average dude but I decided to get into the weeds of my planning early. I cannot overstate how important that was.