Options trading has gained significant popularity among retail investors in recent years thanks to social media, offering them the opportunity to speculate on stock price movements and potentially generate profits. However, like any form of trading in the stock market, the question arises: What percentage of options traders actually make money?
Is it a good Side Hustle?
These days, when you tell someone about easy money, their eyes literally glow!
The idea of “easy money” has been floating around in the options trading space. It sounds sexy, knowing that all you need to make money is with just a few clicks of a button.
Before anyone tries to sell you the idea that options trading is the best side hustle to make money, you should know that only less than 5% of options traders make money.
According to Zippia, only about 40% of options traders (source is workers working full-time) make 6-figure incomes. So if that’s the case, less than 2% of options traders truly make a 6-figure income. So the next time someone says he/she is a successful trading option, just be a little skeptical and do your own research.
If you would like to know more about options trading before continuing, here are some articles for you to check out:
- How Option Credit Spreads Destroyed My Life: A Cautionary Tale
- Are Options Trading Riskier Than Stocks?
- Why Options Sellers love Uncertainty in the Stock Market
- Understanding Options and How to Make Passive Income from It
- How does the put and call option differ from each other
What does it take to be successful in trading Options?
The success rate of options traders depends on various factors, including:
- market conditions
- trading experience
- investment strategies
- risk tolerance
- financial situation
It’s important to note that options trading can be complex and carries a certain level of risk, and it may not be suitable for all investors. In fact, the U.S. Securities and Exchange Commission (SEC) has issued warnings regarding the potential risks associated with options trading.
Why Most Traders fails to make money
It is generally believed that a significant portion of retail investors struggles to achieve consistent profitability. The reasons for this can be attributed to a lack of understanding of options strategies, inadequate risk management, and the influence of emotional decision-making in the face of market volatility.
If you would like to learn more about options trading, I highly recommend Adam from IntheMoney. One of YouTube actually successful options trader that actively shares a lesson on options trading.
Options trading requires careful consideration of factors such as bid-ask spreads, market prices, time value, intrinsic value, and the potential for unlimited losses.
Options trading is run by the big boys
What do you expect to win playing against the big boys from Wall Street? Your odds of winning are slim to none.
Furthermore, market makers and hedge funds, with their substantial resources and expertise, dominate the options market, making it challenging for retail investors to consistently outperform these professionals. Whales in the market buy 100 lots of options and can easily take down your 1 lot; you stand NO CHANCE.
Steep learning curve
New options traders often face a steep learning curve when they enter this arena. It takes time to acquire the knowledge and experience necessary to develop effective options trading strategies. Many traders resort to options courses, research, and analysis to enhance their understanding and increase their chances of success.
Use bad strategy in the investment
It’s worth mentioning that success rates can vary depending on the specific options and strategies employed. For example, some traders find success with strategies like covered calls, where they sell call options against shares of the underlying stock they already own. This strategy can generate income, but it also limits potential profit if the stock price rises significantly.
How to Win Big as an options trader?
Ultimately, the success rate of options traders is difficult to quantify precisely due to the diverse range of traders, strategies, and market conditions. While there are undoubtedly successful options traders who have managed to make a full-time income from trading options, they are often the exception rather than the rule.
Options trading presents opportunities for retail investors to profit from the stock market, but it also comes with risks. It’s crucial for individuals to educate themselves about options trading, fully understand the potential risks and rewards, and develop a well-thought-out investment strategy that aligns with their risk profile and financial goals. Seeking advice from licensed professionals and brokers is also advisable to ensure appropriate guidance in navigating the complex world of options trading.