Trading Options Isn’t for Everyone
Hot take, but after trading for 15 years, I’ve seen options traders come and go, the majority going. The unfortunate part is trading can be a significant wealth development tool and finding a successful approach truly isn’t that complex - not to be confused with easy. The most common reason for failure was lack of planning. I started this way too. I kinda wung things, thinking I’d somehow be successful. I was delusional. The saving grace for me was getting smacked in the face with a large loss that made me completely re-evaluate what I was doing.
Here are 3 things I struggled with early on that I firmly believe can help any trader achieve better results.
1. Plan it out. This doesn’t need to be crazy to start, but will increase in complexity as approach is refined. Beginning with a trade checklist, trading plan, and trade log will greatly benefit any trader. It took me 2-3 years to get serious about creating these tools and that was a mistake. For each trade, I’d define what made me enter, what I expected it’ll do, when will I manage risk, when will I manage profit. Every. Trade.
2. Discipline. Most of us tend to over-evaluate ourselves, in part to protect our fragile egos. I was in college ROTC training for the Marine Corps, waking up at 5am without a problem. I didn’t bother having controls because I thought I could trust myself, I was disciplined - right? Wrong. I took my largest % of portfolio loss during this timeframe. I sold a wide far OTM iron condor in RUT that I thought was “safe”. When one side fell ITM, I didn’t do anything because the probabilities “were in my favor”. The loss grew and I didn’t want to realize the loss because it was large. Then it got larger. And then larger. Before I finally intervened exited as a significant loss. The trade would’ve ended up at a max profit btw.
3. Focus. There are a ton of strategies and variants. It can be alluring to try all of them, which there’s nothing wrong with. But don’t try all of them and rush your exploration to try others. Select 3-5 strategies and truly study them. Once you feel like you gave them a fair shake, move on. I ended up focusing on 5 that I can trade in any market condition effectively - covered strangle, ratio short strangles, ratio diagonals, long single options, short single options.
Sharing lessons learned helps the next generation of options traders get off to a better start than we did. What would you have done differently?