Three Things I Wish I Had Known Before Starting to Trade Options
Despite what the title says, there are many more than three things I wish I had known. For your sake, I’ve grouped them broadly into three. Hopefully, these three topics better prepare you and make you excited to actually get started making money trading options!
First, let me give you a little background about my journey. I got excited about trading options after I connected with The Dorian Way. Originally, I got involved by helping with back end logistics—setting up webinars, monitoring social media, etc. Seeing what traders were up to with The Dorian Way and seeing how passionate our founder, O’Brian Woods, was about options, inspired me to learn.
Disclaimer: prior to learning to trade options, I had never actively traded in my life! I had a 403(b) retirement account and a couple of Roth IRAs, all of which were largely managed by my financial advisor (shoutout to Jesse Eiynck at Bluprint Financial). When I tell you I was brand new to trading, I am not kidding.
Fast forward three years and I’m actively trading. Last year, my portfolio returned 40%, outpacing the market. My involvement with The Dorian Way has grown as well. Now, I work mostly with the members of The Dorian Way Trading Club, making sure they are getting the most out of their membership. From my own experience, and that of others new to trading options, I’ve learned a few lessons.
1. Trading options is not passive income.
Because I had been so hands off with my portfolio so far, I figured that’s how all trading was. Wrong!
Trading options can take as much or as little time as you want, but it will take some time. I wasn’t accustomed to watching ticker symbols, scheduling time to evaluate and adjust my positions, and setting aside time to study to advance my learning. All of these tasks take time and engagement, rendering them active.
While I am a far cry from being a day trader, I consider my portfolio every day. I choose positions that I know I’ll be able to monitor and I take off positions if I know I’m not going to be able to make necessary adjustments (because I’m off the grid on a backpacking trip, for example). Though most of this monitoring is largely done solo, I’ve been surprised by the community of traders I’ve connected with along the way through the Milwaukee Options Trading Group. It’s been more fun for me to trade with others and have folks to ask questions—even if it has all been mostly online these days due to COVID.. Depending on your region, there may be a trading group in your area too!
While trading options isn’t passive, I’ve learned to and enjoyed incorporating options into my daily life. I’m more in tune with global markets and how they impact my financial future and I can flex my new options trading skills daily—to my own personal benefit.
2. When just learning to trade options, you get what you put into it.
When I decided I wanted to learn to trade options, I didn’t know that, at first, it was like taking on a part-time job. I wasn’t even sure what an “option” was truthfully. I didn’t know what a put or call was and I certainly didn’t know what the best options trading strategies were.
Starting at zero meant I needed to invest on the front end—not only some money—but also time. It wasn’t enough to casually listen to options trading videos on YouTube while folding laundry or driving to work. I actually had to listen and read and study—something I hadn’t done since graduate school.
Learning to trade options is more than just the mechanics of trading of course—anyone can do that. I also needed to learn a new language and definitions (like implied volatility, delta, gamma risk, buying power, etc.). On top of that, I had to brush up on some basic statistics. For some, that’s easy. For this art-making, literature-loving gal, that part was a chore. Learning with others made it tolerable.
Perhaps the most important lessons of all were how to hedge and how to adjust positions going against me. For example, traders, myself included, tend to be “bullish” and think the market will continue to go up. Hedging against a loss, or preparing to adjust a position to avoid a loss, goes against this bias. However, these are the lessons that have protected my put spread positions time and time again.
The most difficult part of all of it though was setting aside time for myself. Just like adding “Gym” to my daily calendar, I also had to block time to “Study Options.” Fortunately, it paid dividends. I now feel like I truly know what I’m doing. I know what positions to put on, how to take profits and how to manage through a high-volatility market. Most importantly, I not only know the mechanics, I know the why.
- [Resource]: The Dorian Way School
- [Book Recommendation]: The Option Trader’s Hedge Fund
While I still consider myself a beginner, I have a strong foundation that I’m building upon.
3. You can be successful trading options whether the market is up—or down.
My husband is less interested in learning to trade options, despite his enthusiasm for my success. While I share with him what I’ve learned as a way to help myself learn, he has so far not wanted to put in the time to learn to really do it on his own (see #1 and #2 above).
All that to say, my husband is a stocks guy. He buys stocks and then hand wrings when he sees his ticker symbols in the red. Depending on the week, there can be a lot of hand wringing and otherwise unnecessary anxiety.
On the other hand, one of my favorite things about trading options is that I can make money whether the market is going up or down. I can stick with a handful of basic strategies and choose from underlyings that I know and ultimately win more than I lose. As long as my chosen underlying is staying within a range, I can win — even in the volatile market that many of us have witnessed in this post-COVID era.
While trading options isn’t fail-proof, I have a clear personal strategy that factors in my risk tolerance, skill level and portfolio size. As a result, I can use what I know about options to make smart bets that factor in the reality that sometimes the market will be bearish.
If trading options were easy, everyone would do it and the reward may not be as great. The good news is that by building a strong foundation in the beginning you can learn to supplement your monthly income no matter the market’s conditions.
Happy Trading!Danielle Nelson
February 8, 2022