4 Simple Steps to Get You Started Selling Options

Are you are ready to start making money trading but you don’t know where to start?

You want your investment returns to beat the market, but you don’t want to blow all your hard-earned money trying to learn how.

I completely understand. When I started, I had the same exact fears. I’ve been in your shoes and lost lots of money along the way.

But I made it. I know earn a very nice income from the markets. And so can you.

And to help, I am here so that you do not have the rocky start I did.

In this article, I will share with you how to get started selling options and become a successful trader. Let’s get started!

Success loves preparation: Step One

Why do athletes train over 30 hours a week for a 3-hour game? Because preparation is key.

There are 3 main areas we need to be prepared in before we start selling options.

• Resources
• Emotional discipline
• Support

The first step is assessing your resources.

It takes money to make money.

When it comes to trading, you can’t do it unless you have money in your account. At first though, you should stat out by papertrading. And we will get into what this is a little later on.

But before you even open an account, you need to know your risk capacity.

Many times, people start selling options and trading because they recently lost their job and need money coming in now!

This is not the right time to start selling options or trading.

Trading options, just like any other form of investing, should be done with excess funds to help increase wealth, not with the rent check. It you are trading with money you cannot afford to lose, that is exactly what will happen.

Your risk capacity is partly determined by your living situation. The amount a single, 40-year-old banker can risk is greatly different than a married 65-year-old man who is retired.

TAKE ACTION:

Take an honest evaluation of your capital and risk capacity.

• How much can you invest?
• How much of that investment can you afford to lose?

They won’t all be winners, don’t cry about it

In trading, you will lose, at one point or another.

Are you ready for that?

Can you set your emotions aside and stick to a plan?

Trading should not be emotional, it should be tactical, well thought out and systematic.

There are two main emotions to watch for when trading, fear and greed.

There are two main emotions to watch out for when trading.

Fear can cause you to exit trades before it’s time and greed can cause you to make poor choices in the options you trade.

You can combat this by knowing your risk tolerance; saving you a lot of time, money, and stress.

Let’s say you have a conservative outlook. You want to take things nice and slow. You would rather have a lower gain in exchange for less risk. Great!

In this case, the naked put strategy may be too risky for you. And you should focus on more conservative strategies

Now that you know this about yourself, you will save hundreds or thousands buy staying away from course that teach this strategy.

Oppositely, if you have a more aggressive risk tolerance, selling a credit spread my put you to sleep.

Trading strategies that don’t fit your risk tolerance can cause you to stress out and make it difficult to stick to a plan. Further down in this article you will learn about trading plans and strategies but first, you need to know your tolerance level.

TAKE ACTION:

Evaluate your risk tolerance

• What is your risk tolerance?
• Do you have the self-discipline to stick with the plan no matter what?
• Try the Risk Tolerance Quiz

Assess your support:

Having a training buddy, community, spouse, etc. to talk about your trades, keep you accountable and give you a different perspective is an irreplaceable asset in trading.

TAKE ACTION:

Ask for help.

Have a talk with your spouse, call up your best friend, sit down with your brother, or anyone who can help you stay on track, not someone who will enable bad habits.

Don’t know anyone? Check out Options Trader’s Alliance, it is a free community of options traders and I am sure you can find a buddy.

Get education:

Your trading knowledge and education should be like a T. have the basic knowledge of a wide range of strategies, but go down deep into the ones you will use.

Free education is great but there comes a time where you have to get serious and invest in yourself and your education.

You need to understand what options are and the basic terms used in the industry. More importantly, you need to know the strategies; what they are, when to use them, and how to use them.

Like we talked about in the previous section, some strategies will suit your trading style better than others. After learning the basics, find mentors who specialize in the strategies that fit your style best.

TAKE ACTION:

1. Learn the basic terms and definitions
2. Learn the different strategies used in trading options
3. Pick the ones best for you and learn even more
4. Master one or two before moving on to the next

 

Your partner in crime, The Broker: Step Two

Choosing a broker is an essential part of trading and there are many things to consider.

• Quality
• Availability
• Flexibility
• Customer Service

As a beginner, you may want to go for a full-service broker over a discount broker, and one with good customer service and availability. You will probably need help along the way, and having a good broker can ease the worry of doing it by yourself.

Flexibility is also important, in this mobile age, you want to go with a broker that you can take with you on the go.

This video from Nerdwallet.com gives you a few more tips to choosing a broker and you can read more about Option Friendly Brokers and which ones current trader use from this blog post.

Now, let’s get you approved

To sell options you need to be approved for options trading. Your broker will give you an application or questionnaire to assess your trading level. It varies across brokers, but generally speaking, there are 4 levels. The lower two levels are very limited, your goal is to get up to levels 3 and 4.

The two biggest areas of the application are investment objective and financial information. Your answers to these sections will determine what level you will be granted. Your broker will primarily try to determine if you know what you are doing, which is why getting education back in step one is so important.

 

Funding Your Account

If only we could trade with air and turn it into money. Haha!

But we can’t.

How much money needed to start is one of the most asked questions and the one with no clear-cut answer. No one can say how much you need to start trading and everyone has a different suggestion. Here at Option Genius we recommend our members have at least $10,000, some have more, some less; but no one can say how much you need to start trading.

One guideline you can use to determine how much you want to start with is using a theoretical goal and working backwards.

If you have a goal to make $100 per day, it is way more probable to make 1% a day than 100%, which is basically impossible to repeat over and over.

The goal isn’t the only thing to consider.

You never want all your eggs in one basket and you don’t want your entire trading account to be at risk.

Here are two rules of thumb you can use:

1. No more than 20% of your account in a single trade
2. No more than 80% of my account trading at once.

So, with a $10,000 account, I can trade $8,000 at one time, with no more than $2,000 in one trade.

TAKE ACTION:

• Choose a broker
• Get approved for options trading
• Fund your account

Fail to plan, Plan to fail: Step Three

Would you take a road trip without a map?

Then why trade without one?

Your trading plan is your map. You create your trading plan before you enter the trade. Before you are emotionally invested when you are thinking strategically and logically.

Here are 5 basic questions your plan should answer:

1. How much will I allocate to each trade?
2. What condition does the market need to be in for me to enter?
3. How much am I willing to risk?
4. When will I make adjustments?
5. What will be the determining factors in exiting?

An Accountability Plan

Who is the person you will be accountable to? We all want to believe that we can do it all on our own but we can’t, and shouldn’t. You should have an accountability plan.

Here are 3 things that plan should include

1. Who will keep you accountable?
2. How often will you discuss your trades?
3. What are the key areas they need to check?

This person is not meant to babysit you, but to help keep you honest with yourself. They should be supportive but not a yes man.

TAKE ACTION:

  • Watch this presentation from Fidelity on How to Create a Trading Plan.
  • For an in depth training on how to keep your emotions out of trading, check out this training called Trade Hacks. If you have ever found yourself scared to place a trade, or taking losses when you do not know why, this trading will help. The tricks I share in this training literally turned me from a losing trader into a profitable one, almost overnight.
  • Take an evening to sit down and create your plan. Do not let this sit on your to-do list. Buckle down and get it done.

Put the Paper in Trading: Step 4

When it comes down to it, the more experience you have trading the better you will be.

So how do your get this experience? … PRACTICE

Practice is critical in becoming a successful options trader.

Take your time!

Paper trade!

Papertrading is where you trade with fake money. Most brokers have virtual accounts now. So get yourself a virtual trading account and place your trades in it. This is the best way to learn with no risk. If you lose, it is not a problem because it is not real money. So you can trade, makes mistakes, learn and improve.

Don’t be in a rush to jump in and risk losing your hard-earned income.

Take 1, 2 or even 3 months to paper trade, however long you need. Learn how to get in and out of trades, get used to your brokerage platform and develop healthy trading habits before real money is on the line.

TAKE ACTION:

Contact your broker and find out if they have paper trading available. If not, Think or Swim offers a 60-day free trial on their platform.

You are now ready to start selling options.

So, let’s recap, you want to start by assessing your resources, emotional discipline and support. Make sure you invest in proper education and training. Next, find your broker, fund your account, and create your plan. Finally, practice!

If you put all these steps to use, you will be ready to make you 1st real money trade without losing sleep. I hope you found this article useful.

Oh and remember to always trade with the odds in your favor.

If you do not know what that means, keep reading.

BONUS!

Back in step one, we talked about education. If you are brand new to selling options, we have you covered. We offer an FREE 9 lesson course that can help you get your education going. It’s easy to sign up, just go to https://optiongenius.com/, enter your email address and the course comes straight to your email inbox.

— The Option Specialist

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About the Author: The Option Specialist