Jan 17, 2021 Finance

Can You Make Money Day Trading Options?

Ten years ago it was almost impossible to sit in a cafe or attend a party without overhearing a conversation in which two or three people were bragging about all the money they were making day trading the market. If one of the folks was a REAL winner, he was talking about all the cash he was raking in by day trading options. It appeared to be each day another millionaire was popping champagne stops.

Then the market crashed and the majority of these geniuses lost their shirts. The easy money had dried up, and the stories about financial conquest dried up, too. Is it still possible for anyone to make money day trading options, or are those days long gone?

requirements to trade options

It IS still possible to make money day trading, yet it is certainly more difficult than it used to be when trading stocks and significantly more so for options. Why quite a lot more difficult when trading options? There are multiple reasons, yet here are three big ones: an inclination for bullish positions held by most traders, smaller moves in underlying stocks, and less strongly trending days in the markets than we saw in the late 1990s. How about we take a glance at each of these:

  1. A bullish bias. This inclination in requirements to trade options is a real riddle. Being an investor is one thing (however a lot rarer thing than is generally assumed) and in that case a bullish bias is natural. Yet, if your explicit goal is to simply reap money from the market as prices move, direction makes no difference – ESPECIALLY when you are using options. By their actual nature, we can take positions (call or put) which offer profit potential regardless of the underlying’s development. Not recognizing that is an enormous screw up: watch your own trading decisions to check whether you identify this bias.
  1. Smaller moves in the markets. Day traders who center around stocks (and have sufficient capital to work with) can make money when their trading vehicles move only a couple pennies. But since options on stocks move not exactly their underlying AND because they often have a lot wider bid/ask spread, moves of this size do not help the options day trader. Slippage will simply drain away much potential profit.