The thought of earning your living through option trading is certainly alluring. First and foremost, it is you who would get a chance to throw your boss out, and not the other way round. You also get to work from home. Maybe not exactly, but you do have some flexibility in your timing. All you’ve to do is make just a few decisions, everyday. In no time, you would find that you are making ample profits on your investments. Those would give you the kind of lifestyle you wanted, but never thought possible.
If someone wants to sell you something then they can put it as simple as that. But it is not easy as that. But when it is put it is like that it is very appealing. But all these things doesn’t mean that it cannot be achievable. The only thing is that it cannot be achieved in that a simple way.
There are several critical factors to consider while trading, irrespective of the fact whether it is trading in options, or trading in stocks. First and foremost, you have to start with a plan. The first step of this plan is to identify the amount of capital you can invest, i.e., how much would be your trading capital, and how much income you want to generate from it. Of course, you have to be realistic with your expectations. This identification of capital should give you an idea about how much is the minimum return you need from each trade, and maximum loss you would be willing to absorb from any loss trade. The next step is to identify how much you would be willing to invest in a specific trade out of your capital. This is referred to as position sizing. This depends upon how much risk you associate with that particular trade. Each trade has a different risk level. At the time of investment, you also need to decide on your strategy. One trade may generate returns with one strategy, while another trade may fetch return with another strategy. Strategies in option trading include straddle, speculative trading, and long-term investment. Therefore, you might want to invest some amounts in long-term investments for generating specific returns, while you might opt to speculate or straddle with other trades or amounts.
You might want to consider researching the theories behind stock market trade, and figure out the best ways that work for you. There are “fundamentalist” approaches, which include reports from companies and management, while there are also “technical analyst” approaches, which involve actually following charts and tracking the price patterns that emerge.
You would then have to coordinate the strategy you’ve selected for your option trade with the approach. How is this done? Suppose you choose to straddle. You would be interested in the stock price moving either way. You would then be interested in reports about the company’s earnings. If you base your decisions on stock charts then if you have chosen to straddle, you would be interested in formation of a symmetrical triangle in the charts. This pattern should also be accompanied by lower volatility in options. People opting for speculation would be watching for levels at which the stock price receives support at the bottom, and the level where the stock price faces resistance while moving further up. You would also be looking for trends in other stocks of similar category, and try to make profit from sudden price breakouts, which are, of course, profits from short-term investments.
Think carefully before you decide to commit to option trading. Much like a marriage, it can be a lifetime commitment. Like picking a spouse, you need to have confidence in your relationship with option trading and your approach is strong enough to be able to make it through the long haul and through the obstacles that will cross your path. Much like a marriage, You must be willing to be able to continue to learn and grow and test yourself. You must also be willing to accept the fact that this might be your only financial resource. They don’t call it “option trading for a living” for nothing!
Notwithstanding what you’ve been told before, it is not possible to generate enough monies for living through option trading, if your initial capital is not large enough. If you are unable to spare much for option trading, you would be better off with your job, and any small trading would supplement your income till you have a decent nest egg to start option trading for earning regular income. As of date, you do need about $20,000 to begin with.
You qualify as an option trader who can earn his or her living from the financial markets, if you have personally tested and identified a system that predicts with reasonable accuracy the stock price movement. You should approve of the system and approach only after you’ve tried them in a few regular short-term trades, spread over a couple of years. You also need to develop some self-restraint such that you do not feel inclined to invest an amount exceeding 10 percent of the capital you’ve set aside for trading in options.
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