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Can An Option Trader With A $100k Account Consistently Make $500 A Day?

Posted by Pete Stolcers on January 6, 2007

Option Trading Question

My question is simple, but best explained by telling what I want to do. I want to invest 100% of my money into stocks and make a net profit of .5% everyday. Buy, hold for 1 - 7 hours, sell and bank the .5%. Compounding everyday at .5% would be very profitable and I could retire in only a few years. Here is my thinking: stocks go up, down or sometimes do nothing. So all I need is to know is which stocks will move today, by at least .5%, and in which direction. It is true that most stocks move everyday! The expected return .5% is normal within most stocks daily range. The problem I have is pulling all the information together to say that there is a 95% chance that XYZ will drop today. The 0.5% is net after trading cost $10 + $1.50 per contract and the spread.

Option Trading Answer

In today’s option trading blog I’ll answer a question that makes it all sound easy. I’ve seen similar numbers used in infomercials. If I have $100k and I make $500 each day, that is 10k a month and $120k a year. All I would have to do is to make a half a point on a 1000 share stock trade each day to make it all work. If I compound that .5% daily, in the course of 10 years… I should be able to wipe out global starvation with my riches. I don’t want to sound demeaning in my response. The question is frequently asked and there are many “gurus” who claim it can be done.

First, let me bring you back down to earth and say that a 120% annual return is not achievable on a consistent basis. If a life-long trader does it once in his career, it is quite an accomplishment. I know that there are people who have turned $10k into $1 million but they were in the right place at the right time and luck played a huge role in their success. For every “rags to riches” example, there are 10,000 people who blew their account out. If these returns were easily attainable, one out of every five people you meet would be a stay-at-home trader. Stay at home, spend time with your kids, be your own boss, live the good life… these are the heart strings that are pulled by “snake oil” salesman who want to show you the path for a mere $3000. I’ve been in this business for over 17 years and you might have interest in reading about my experience of “going pro”. My story made the cover of Active Trader Magazine - September 2006.

Now, let me address some other parts of you question. Can a person trade in and out of positions, scalp the market and make profits - yes. Because of the short term nature of the trade, slippage and commissions take a huge bite out of profits. That means that options are out of the question. You have to trade stock and you need to find a company that caters to proprietary stock traders and offers a $.005 (half a penny) flat per share rate. Live data feeds, charting and advanced order entry features are a must. This is a very hard living and having done it, you’ll be tired at the end of the day. When you add up data feeds, health insurance, internet connections, software applications and computer hardware, you can expect the first $2k/month to go to overhead expenses. This type of trading is a grind and it is a very emotional experience. It can take 2-4 years just to get profitable. In the question you addressed the issue of being able to predict the direction of a stock. Bingo, that’s the whole problem! Expect to spend months reading about technical analysis and money management. Then expect to spend at least two years finding an edge and developing an approach. We’ve been in a major 4-year bull market and the trading has been fast and relatively predictable. When that ends, so will the careers of many scalpers (until the next major trend).

I believe the better way to trade is to form an opinion and to spend your time on research and analysis as opposed to reacting to every tick and blip on the screen. If you think about the richest traders in the world (George Soros and Warren Buffet) they did not scalp markets. They did extensive macro research and took long term positions. In day trading stock, you are not taking any overnight risk so you can’t expect to make large returns. If you form an opinion and take a directional stance for at least a week, your returns (and risk) go up dramatically.

As a professional trader, I expect to make 25% a year regardless of market conditions. This “tiny” return will drive many glory seekers away and that’s ok. There are many other people that will sell you a pipe-dream of riches. I have a systematic approach that has taken me years to develop and there are many years when I exceed my expectations. Day traders and option traders who have been around the block recognize the quality of my research and rely on it for trading ideas. Since I used your question, you can try a OneOption research report free for a month.

This is the easiest business to start and the hardest one to grow. Anyone with a wallet can pull up a chair.

Option Trading Comments

  • On 02/09, Neil M said:

    Good answer. Although many aspire to the trading lifestyle, few are as long term successful as the ads suggest. I applaud you on two specific gems in your article. Thanks for confirming the first 2k is fixed expenses.....and thank you so much for the statement that “anyone with a wallet can pull up a chair”. I did it many years ago, and have had moderate success. But once you have reached some degree of success, everyone wants to know how to get in on this “easy money”. I think I will tell them about the 2k and the wallet. Thanks

  • On 05/03, Pete Stolcers said:

    Hi Neil,

    As you know, it is anything but easy. I try to teach my systematic approach. It is not the Holy Grail, but over time, hard work is rewarded.

    Thnx for the comment.

    Pete

  • On 07/07, Don Ideran said:

    Whatis the ammout I need to make option1 profitable its currently 99 dollars?

  • On 07/08, Pete Stolcers said:

    My least expensive service is the Level 1 Option Report and it uses a $30k base. Since it is a premium buying service you can cut the size down to a third and start with $10K. I would not advise starting any option trading program with less than that.

    Thank you for the interest.

  • On 11/30, Rob Urban said:

    After 3 yrs of research and live trading I have a system that generates 50% returns, on average, each year.  This 50% is generated with 20-50% of my money in cash on average.  I hold a maximum of 10 stocks at one time.  It works and I’ve even bought a few stocks the same week Warren Buffett did (Office Depot for example).  I entered ODP at $7.58 and my model told me to sell at $18, which I did less than a year later (2001).

  • On 11/30, Pete Stolcers said:

    Hi Rob,

    Those are excellent returns - congratulations. Make sure to adjust your system to account for changing market conditions. I sense that the 5-year bull market run may be getting tired.

  • On 12/11, Crazy Trader said:

    25% a year trading options is PATHETIC! 5 star ranking fund managers turn more than that trading just stocks every year! You just don’t have the technology or skill and trying to find an excuse for yourself… pathetic… loser’s limp.

  • On 12/11, Pete Stolcers said:

    Why do you think they call them “5-star” you dope? They are a handful out of thousands and that is the low end of my bench mark.

    Post 5-years of end of month brokerage statements and let’s see you back up your comments - genius.

    Only a novice would post a response like this.

  • On 01/06, Jorge Perez said:

    Yes, that was a naive response.  I will take your advice and I think you are trying just to let people know is not as easy as it might seem.  I am very aware of that.  I am trying to quit my job and trade but I do have a tutor who has been successfully trading for 10 years, which I think is an advantage (and a requirement sort of, to be honest).  Having someone with the scars advice is priceless.  I would not consider doing it without his help.  Thank you for your article/answer.

  • On 03/07, BoundForHell said:

    Crazy trader adn all you hot shots out there post your statements to back up your claims because I do not believe any of you.

    I have been option trading for two years and lost all of my money, ( $60000 that I started with ) sure I had some fantastic returns and was up for a while, and dreamed of the big returns that would make me a millionaire but mostly I had very bad failures, my timing was way off.  I was down to my last $500 just a few weeks ago and I have crawled back up to $12000.  Now after doing this for two years I realize that there is no fast track and Peter is absolutely correct there only a hand full out there that have had the good fortune of being at the right place at the right time, for the rest of us it’s hard work and emotional abuse.

    Good trading everyone
    BoundForHell

  • On 03/10, Pete Stolcers said:

    Thnx for the post. I’m glad you are back! $500 - $12k is a nice run. You don’t make that king of $ w/o putting it all at risk. Take a break and only risk small amounts.

    Here is an article from Active Trader Magazine that might be of interest.

    http://www.oneoption.com/stolcers0906.pdf

  • On 08/14, Harold Brauer said:

    What happens to a long put option position if the underlying company goes out of business and trading ceases?

  • On 08/15, Pete Stolcers said:

    You are able to sell the stock short at the strike price and you buy in your short stock for a penny. Your put trade has maxed out.

  • On 01/04, Nick said:

    I have a question / thought.  I can truly appreciate what you are saying about risk and whether or not these returns can be consistently acheived.  But, I am curious your opinion on my strategy.  I am selling naked puts right now on stock that I dont mind owning if the trade goes against me.  As you know, that means I am collecting the premium up front and then once the trade has moved enough to satisfy my yield requirements I am exiting the trade and not waiting for an expiration that would allow me to keep the entire premium.  Most of my activity occurs in 2 weeks or less. In the event the trade goes against me and I have to take delivery of the stock, my strategy is to either immediately sell the stock and totally mitigate my loss if I feel the stock is going to plummet, but mostly my strategy is to immediately begin selling covered calls on the stock should I have to take delivery which will lower my cost basis in the stock until / unless the covered call gets exercised in which event I will have exited the trade.  So far I am actualizing returns north of 40% annualized.  Thoughts?

  • On 01/08, Pete Stolcers said:

    Perfect strategy for this market. The implied volatilites have been at historic highs and the market established support. You will never make more money on this strategy than you have in the last two months. That said, I love it and I have had similar returns in a 60-day period. The key is to find the right stocks. If the stock breaks major support or the fundamentals change, you have to get out. When the option IVs (VIX) fall below 30, the easy money will be gone and this strategy will grind out normal returns. Way to go!

  • On 01/08, nick said:

    Thanks Pete, that gives me some good things to think about and watch for!  NE

  • On 04/11, Options101 said:

    I’ve made 50% return writing OTM naked puts in the last 5 months. It’s easy if you look for good stocks with high IV. Stay away from buying puts/calls, the real money is in selling options, covered calls, naked puts or credit spreads!

  • On 04/13, Pete Stolcers said:

    Nothing is easy. Those are great returns and you are using the right strategy at the right time - congratulations.

    We have been generating similar results in our put writing, but those results will change with the IV dropping.

  • On 04/14, s lee said:

    Hi, Pardon me for my ignorance, I am new to this blog, I read with interest what Nick said on 01/04,also Options101 on 04/11.(is these comment current year 2010?).

    When Pete replied on 01/08, warning that when Option IV (VIX) fall below 30,results would not be so good. Please advise where is the best place that I could get this IV info. I trade using IB.

    Next, they mention selling Puts, please comment whether it is better to do Short Strangle instead of Naked Put (one direction)

    The yield is better and also probability is increased with strangles.
    Thank You.

  • On 04/19, Pete Stolcers said:

    You can get IV information for individual stocks at www.ivolatility.com

    I don’t like to sell strangles. I am a directional trader and I always have an opinion on direction. If I can’t form an opinion on a stock, I keep looking.

    I don’t sell calls, just puts with the intent of owning shares if assigned. There are times when I will buy back the puts if major support has been breached or material news changes the company’s outlook.

    I will sell call credit spreads, but never naked calls. One takeover can destroy you.

  • On 04/08, Califa said:

    Love you all! This is the blog i have been looking for all along....I can learn from all of you. Love your insight Pete,generosity and experience...Thank you!
    My main interest is ‘Naked Put Saling’ and developing risk control strategies” i love all the entries and would like to know more about Ed or EN...and a little more about your services Pete.....Regards FS

  • On 04/11, Pete Stolcers said:

    Thanks for the kind words. I am a big fan of naked put writing. You need to pay particular attention to the fundamentals of the stock.

    I have an entire course on the subject and it is entitled Covered Call Writing - The Right Way. On an unleveraged basis, nake put writing is the same as covered call wiriting. However, there are advantages to writing puts. You can leran more about the course at this link.

    http://www.oneoption.com/Products.aspx?product=8

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