If you’re in need of a profitable job that you can do remotely, consider options trading. Becoming an options trader might seem overwhelming, but it’s easy to understand if you have the right knowledge and tools. You can work independently or work for a brokerage firm. You’ll also deal with investor portfolios such as bonds, ETFs, stocks and mutual funds.
So, if you’re looking for another career opportunity, becoming an options trader is an option. Here’s everything you need to know about the trade of an options trader: salary, requirements, benefits, pros, cons and more.
- What is an Options Trader?
- How Do I Start Trading Options?
- How Do Options Traders Make Money?
- How Successful are Options Traders?
- The Bottom Line
What is an Options Trader?
Options traders are in charge of selling and buying stock options. They can work for a private hedge fund or a large investment bank. One of their most important tasks is managing complicated capital investments for their clients. If you work in options trading, you’re tasked with developing forecasting models (to determine the best prices to buy an option to minimize risks and maximize profit) and creating options contracts.
Your list of responsibilities also includes the creation of models and reports that outline financial positions for your clients. These models should guarantee an increase in your client’s portfolio.
How Do I Start Trading Options?
Becoming an options trader requires going through several steps:
Earn Your Bachelor’s Degree
Options trading doesn’t come with formal requirements. However, investment banks and private financial institutions are more likely to hire traders with a bachelor’s degree. If you want to work in this industry, study finance-related fields like economics or math in college. Another option is to take courses that teach accounting and finance.
Open an Account on an Options Trading System
Options trading systems with simplified rules on entries and exits are ideal for beginners. The different tiers of the trading system often require different amounts of capital. Some might even require you to sign an agreement. In other cases, the trading system ranks accounts according to the risk levels you’re willing to take. This offers low-risk account traders instant access to a variety of trades.
Choose Your Options and Forecast Strike Prices
Choosing whether you should buy a put option or a call option depends on your stock price predictions. Falling stock prices indicate call option sales or purchases while rising stock prices indicate a future put option or call option purchase.
To increase your expertise and experience, use your capital or make investments for close friends and relatives. As time goes by, you can increase the value and number of your trades. Private clients and brokerage firms value experience when choosing options traders to partner with.
How Do Options Traders Make Money?
On average, options traders make a salary of more than $90,000 per year. This amount doesn’t include annual bonuses and potential commissions. So, how does a trader make this amount?
If an options trader works for a hedge fund or other large firms, they earn the base salary, as well as commissions from the buying and selling of options. Traders who work for larger firms also depend on bonuses to earn their keep. The better you are at trading options, the greater the bonus you’ll receive at the end of the year. On the other hand, independent traders directly make money from each successful trade.
Many aspiring traders ask “Will I get a fixed income if I work in this industry?” If you work for a private firm or a brokerage, you’ll receive an annual salary. If you’re an independent broker, your income will come from the commissions that you receive, so the income isn’t as guaranteed.
How Successful are Options Traders?
Options are one of the most versatile ways to make money in the financial market. Its flexible nature enables traders to leverage their positions for better returns on their investments. If you also possess a particular skill set and a positive attitude, you can reign supreme in the industry of trading options.
So, what’s the secret sauce to an options trader’s success?
Be Good with Numbers
Trading options is a job that requires dealing with numbers. What’s the trade’s breakeven? Is the option out of the money or in the money? What is the deal’s implied volatility? Options traders must have answers to these questions.
Manage Risks Well
Dealing with options means dealing with high-risk tools. It’s important to know how much risk is involved in the deal. What is the explicit or implicit position with respect to the options’ volatility? What is the downside of the trade? How much capital can you allocate to the trade?
Traders must also be knowledgeable of risk-control measures. For example, if you are a short-term options trader, you’ll encounter long-making trades. This means there is a high chance one of your trades will go bad anytime, anywhere. You must be capable of minimizing the risks of your positions no matter where you are.
A successful options trader must also be a good manager of money. Wise use of capital is the key to your success.
Develop a Trading Style
No two traders are alike; each trader has their style of trading. Some options traders are talented at day trading. They can easily buy and sell options and make a profit during the daytime. Some traders excel more in position trading, which is a type of trading that takes advantage of unique opportunities like volatility and time decay. Other option traders like a challenger and prefer swing trading, which is the practice of making bets on price movements.
Carefully Plan Your Trades
The best traders are the ones who operate on feel and instinct. If you don’t have a plan and prefer to place random trades, you’ll be working without a map. But if you have a plan, you have a blueprint for your next steps.
With a plan, you are more straightforward with your goals and how you plan to achieve them. You’ll also better know when to book profits or how to cover your losses. Always have a strategy.
You can’t stake market claims and then leave it when it isn’t the type that suits you or your clients. Accept that losses are inevitable. In some cases, accepting is more logical than fighting the market.
The Bottom Line
Options trading is an exciting job opportunity that involves trade watching and plenty of planning. As long as you have the right skill set, training and plenty of patience, you’ll surely excel in this trade.