Trading stock can be a great way to make yourself a lot of money if you have a sound strategy and don’t act on impulse. But what about trading options? Can options trading make you rich?
Options trading can make you rich, but only if you employ the right strategies and adjust course if you’re consistently losing money on expired options. Since options come in 100-share increments, your profit margin is considerably higher. Call options are generally more profitable than put options.
So how do you know which options to buy, put, or call? And is there a way to calculate your profit or loss from an option? Read further to learn more about getting rich from options trading and my recommendation of some great books to help you get started on your profitable trading journey!
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
How Do I Know What My Profit (or Loss) Will Be in Options Trading?
When you trade options, it’s essential to understand whether you’ll make or lose money depending on the stock price. If you have a call option, an option that lets you buy a stock at a specific price, you’ll profit if the price rises. On the other hand, if you have a put option, an option that lets you sell your stock at a specific price, you’ll profit if the price decreases.
If you can profit with the option outcomes listed above, you’ll also need to calculate your profit. Your profit will be the difference between the stock price and the price your option allows you to buy or sell at, sometimes called the strike price.
The difference between the strike price and the stock price, minus the price you paid for your option, is your total profit. Since you have to buy options in 100-share increments, you can make a considerable profit from just one option trade.
This profit increases if you have multiple options or if you can consistently profit with options over time so that you can get rich from options trading.
Unfortunately, this also works the other way around. If you have a call option and the stock price decreases, or if you have a put option and the stock price increases, you’ll suffer a loss. Now, your loss won’t be as significant as the profit would be since you won’t exercise your option, but you’ll lose the price you paid for the option, which can add up.
Can I Lose Money With Options Trading?
As discussed above, you can lose money from trading options if you’re on the wrong side of the stock price change. Even though your loss isn’t as significant as the profit would be, and you’re only losing the cost of the option, the losses can make an impact if they continue to pile up.
If you’re consistently losing money with your option trades, you’ll likely need to change your strategy. If you’re constantly losing money with selling options, try buying options or vice versa. You can always have some buy trades and some sell trades, to optimize your options trading portfolio based on your risk appetite. Make more of the trades that you can constantly profit with and limit your losing trades.
If you’re regularly losing money trading the market, you’ll never get rich, so pivot your strategy or trading ratio until you return to a profitable trend.
Are Call Options or Put Options Better for Getting Rich?
If you’re going to get rich, you’ll need to be on the right side of the trade with the right option type. But, is one option type better than the other for delivering consistent profits?
Let’s compare call and put options to see which can help you earn more money.
A call option allows you to buy a stock at a specific price for a certain period. If you can profit from your call option, the amount of money you can make from immediately selling the stock you buy at the strike price can be a lot. With these options, your profit potential increases in direct correlation with the asset price. You’ll profit a lot from your option if the stock price shoots up exponentially and you have the option to buy at the previously lower price.
Contrarily, in the case of put options, you can sell your stock at a higher price when the price decreases. Unlike call options, the amount of money you can make from a put option isn’t limitless since the lowest a stock price can reach is zero. Contrarily, with call options, your profit potential in essence is infinite.
Therefore, statistically, a call option has a higher profit potential than the put option. But, depending on the type of market that you are trading in and your investment strategy, put options can often yield better results.
It is also worth noting that while theoretically, one option might have a higher profit potential than the other, but the loss from letting both call and put options expire without exercising it is virtually the same. This is because you’ll only lose the premium you paid for to hold the option with both these option types.
In conclusion, irrespective of whether you trade call or put options, these instruments being a unique form of leveraged products offer you the potential for an exponential return against a limited downside risk. But, that all being said, the probability of a single put or call option trade making you rich is highly slim. Hence, if you want to get rich from options trading, you’ll need a profitable strategy to trade many options with have a high success ratio.
How To Get Rich With Options Trading?
If you want to get rich from options trading, you’ll need to learn a lot about the basics of trading options and some of the best strategies for buying and selling options. The best way to do this is to read books about options and the stock market, in addition to finding resources online that have up-to-date information on options trading strategies.
The following books are some of the best foundational books to get started with options trading. Consider investing some time reading these to get you started on your journey of getting rich from options trading. All of these books are available on Amazon:
- Get Rich with Options: Four Winning Strategies by Lee Lowell is written by a former options trader who spent years on a trading floor. He shares his advice and strategies for getting rich from options trading. The book details four successful strategies for options trading and how anyone can become an options trader right from their home.
- Options Trading Crash Course, Beginner’s Guide by Jerry D. Hill is a two-books-in-one bundle that is all about options trading strategies and the stock market. The introductory book will be beneficial for you to learn about options trading fundamentals and to understand the knowhows of successful trading. This bundle is an excellent resource for beginners as it not only walks you through various options trading fundamentals, but it also helps you build a strong foundation on the overall stock market, which in essence will be the driving force behind most of your option trades.
- Option Strategy Risk/Return Ratios: A Revolutionary New Approach to Trading Any Option Income by Brian Johnson is another book by a professional investment manager. The book will help you understand risk and return while you’re trading options. It’s written in a simple to understand language, so is ideal for any beginner interested in learning more about options risk management.
The more you learn about the underlying principles that make options trading work, the better will be your chances of making profitable trading decisions.
If you’re looking for other resources on options trading and how to get rich with options trading, check out this video from US vs. HERD on Youtube. They break down how to get rich from trading and how likely it is to get rich with your option trades:
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
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Conclusion
If you want to get rich from options trading, you’ll need to read a lot and learn about the different strategies to trade options profitably. Once you pick a strategy, you’ll need to backtest it and constantly monitor your option trades to ensure sustained profitably. If you’re having too many losses from expired options, it is oftentimes an indication that your trading strategy needs some revisiting.
Buying options is oftentimes more profitable than selling or writing options. But using the strategy that suits your personality is, in essence, what will help you get consistently profitable. While you are unlikely to become rich from a single options trade, you can make considerable money trading options over a longer time horizon with a good time-tested trading strategy.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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