Can option trading turn you into a millionaire?
This is one of those questions that I hear from people new to option trading all the time and not an easy question to answer in my opinion. Of course, option trading can create millionaires and many, including myself, have made more than a million trading options. However, can option trading turn YOU into a millionaire?
In a way, asking this question is like asking questions like:
Can stock trading turn you into a millionaire?
Can futures trading turn you into a millionaire?
Can Forex trading turn you into a millionaire?
Can selling hamburgers turn you into a millionaire?
Can collecting coins turn you into 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 made other millionaire people?
First, let's look at the theoretical possibility of earning a million through option trading. Suppose you have $ 5,000 to start trading options and you average 50% per trade and compound your winnings. Here is the status of your account after a number of transactions:
After the first exchange – $ 7,500
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 transactions at 50% profit per transaction, which isn't much in option trading, to increase $ 5,000 to a million. If you only do one of these trades per month, it only takes you a little over a year to become a millionaire. As such, becoming a millionaire in option trading is clearly not outside the realm of possibility and clearly very fast if you do it right.
This brings us to the next question, are you able to produce a chain of 14 consecutive wins at 50% per win? There is clearly no easy answer to this too. I have heard of extremely lucky people who have already done this, but this is clearly not something that applies to everyone.
Yes, in my 15 years of options trading, I have to say that I have never seen anyone make a 14-game winning streak in a year or two without losing whatever strategy they choose. 39 options he uses. The good news is that you don't need to make 50% on each win or a chain of 14 wins to make a million trading options as long as you follow a sensible trading methodology and have a lot of patience.
Doing a million options trading is not about not losing. It's really about making more wins than losses. As long as you have a way to consistently win more wins than losses, you can win a million in anything as long as you have the patience to stick with it. Yes, it's the same logic in any form of trading.
If it is the same in any form of trading, then why option trading?
The beauty of option trading is that it helps you make more gains than losses with 2 unique ways; Convexity and versatility.
Convexity means being able to potentially earn 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 increases by $ 10, you make $ 10 profit and if the stock drops by $ 10, you suffer a loss of $ 10. There is no convexity. When you buy options, their value goes up as long as the stock continues in the right direction (up for call options and down for put options), but if the stock goes in the right direction Another way, you will not lose as much as you used in buying options, nothing more! For example, if you bought a call option contract for a stock for $ 150 and the stock went up by $ 10, your buy options were worth $ 1,000 but if the stock went down by 10 $, you would only lose the $ 150 you used. That's the convexity. As long as you only use money that you can afford to lose or the maximum amount that you are willing to lose on a single exchange to buy options, you will always have the money. 39; advantage of the convexity of your side.
Versatility is found in the wide range of option strategies that can be implemented. Many option strategies allow you to profit not only when the underlying stock moves in one direction but in several directions! Yes, in futures or stock markets, you only profit when the stock goes up or down (when you run out of stock or futures). However, in option trading, there are option strategies that allow you to profit when the stock goes up or down back and forth and option strategies that even allow you to profit from 3 directions! Yes, being able to take advantage of more than one direction greatly increases your chances of winning and greatly improves the possibility of winning more wins than losses!
So can you become a millionaire of trading options? Yes you can. In fact, from the properties of convexity and versatility mentioned above, option trading could actually make it easier for you to become a millionaire compared to 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 option trading?