In How Can The Average Guy Succeed Trading Options?, I wrote about how there is no minor leagues for investors…that we are all trading the same markets. Of course, this is intimidating when you think about it. After all, you are competing against sophisticated algorithms, well-financed hedge funds, traders glued to the screen, itching to move on the latest news that hits their Bloomberg terminal. While I think there is a speed edge for them, that shouldn’t affect the success you can create in the markets. Namely because these groups have different approaches and objectives when trying to generate alpha.

1. How To Start Trading Options
Successfully

2. In How Can The Average Guy Succeed Trading
Options?, I wrote about how there is no minor
leagues for investors…that we are all trading the
same markets. Of course, this is intimidating
when you think about it.

3. After all, you are competing against
sophisticated algorithms, well-financed hedge
funds, traders glued to the screen, itching to
move on the latest news that hits their
Bloomberg terminal.

4. While I think there is a speed edge for them,
that shouldn’t affect the success you can create
in the markets.
Namely because these groups have different
approaches and objectives when trying to
generate alpha.

5. So, how can you possibly compete as someone
new, just starting out?

6. Most likely, you’ll end up losing money. I know I
did on my first options trade…but I chalked it up
as a lesson learned and knew there was a lot
more I needed to learn.

7. You see, there’s a lot to learn before you can
become a successful options investor. Not only
do you need to know the mechanics behind
options…but generating ideas and executing
them, given the current market conditions.

8. After all, options are just a vehicle and an option
strategy is just an expression of your opinion.
Without placing a live trade, you won’t know
exactly what fits your time constraints and level
of comfort.

9. Many successful investors will tell you that they
have no clue on whether a stock will be up or
down any given day…however, over a longer
term horizon they feel they’ll be right.

10. Whereas, a day trader can tell you where they
think a stock will be headed over the next 5
minutes but have no clue on what it will do
tomorrow or next week.

11. First things first, it’s important to set
reasonable expectations for yourself.

12. You’ve probably heard from a loved one before
that you’re special…and you are…but don’t think
that’s going to translate to instant success, when
it comes to investing and trading the markets.

13. Every now and then, I’ll get emails from aspiring
traders, they’ll tell me how committed they are,
how quickly they can learn and that they’re
analytical…all great things of course.

14. However, they then end the email by asking me
if I think it’s realistic for them to achieve 10-15%
monthly returns if they do all the right things.

15. Unless you’re some kind of prodigy, your first 6-
12 months is a learning experience. The goal
should not be making a lot of money…but
simply not losing a lot of money.

16. Even Kobe Bryant had to wait till his 3rd NBA
season before becoming a full-time starter for
the Los Angeles Lakers.

17. So how do you get started?

18. The answer is simple, like the Nike slogan
says…JUST DO IT. What I mean is opening an
account with a brokerage firm and start trading
small. But Josh, can’t I get started with a demo
account and paper trade?

19. You could, but I personally think it’s a waste of
time. Most likely, you won’t take it seriously
enough…and if you are not doing the stuff you’d
be doing with real money then the entire
exercise is a time waster.

20. By starting off small you accomplish a number of
things:
• You’ll have skin in the game
• You’ll learn about execution

21. • You’ll learn how you manage emotions.
• You’ll also be able to see how your idea plays
out because you’re not risking a lot.
• You’ll learn the foundations of money
management

22. You see, one of the biggest issues new and
sometimes experienced traders have is poor
position sizing. By starting off small, you’ll have
the ability to evaluate whether your ideas are
profitable or not.

23. Two things could happen.
The first, your confidence grows, allowing you to
eventually add more size to your trades.

24. The second, your ideas don’t make money and
you have to go back to the drawing board.

25. In business they call this proof of concept.

26. Again, by starting off small, you’ll gain valuable
“screen time” and experience. If you haven’t
noticed, there is a lot of noise in the stock
market. If you’re over-leveraged, you’ll most
likely react to the noise, forcing you out of a
position at an unfortunate time.

27. In addition, by starting off small you’ll learn the
foundations of money management. Not every
trade is the same. Some trades you’ll get in
might be binary events, earnings, for technical
reasons, fundamentally driven or even based on
a view on volatility.

28. For me, a good chunk of my ideas are generated
from unusual options activity using my SIZZLE
Method.

29. Of course, I like to mix it up by shorting volatility
in stocks or indices that I believe are over-valued.
In fact, learning how to make the market
beat you is probably easier to manage than
buying options, which I’ve found that a lot of
individuals struggle with.

30. In any event, you’ll need to record and backtest
yourself on each trade to see what works for
you. For example, let’s say you bought calls after
following unusual options activity in a stock.

31. Some notes that you should record:
• What was the order, the quantity and price
that motivated me to get in this?
• What is the implied volatility and how does it
relate to where it’s been this year?

32. • Did you pay up and chase these calls or are
you getting in at nearly the same level they
are?

33. • If these are near term options, do you think
the order flow was driven by technicals or
something else like an earnings, conference,
rumors or some other news catalyst?

34. • If these are long term options, will you stay in
the position until it possibly works? could your
capital be better used elsewhere? Will you get
bored and close out if nothing happens in a
month or two?

35. • Is there any other activity in the sector or is
this isolated in just this one stock?

36. The beauty behind unusual options activity is
that you’re given some sort of guideline on
where the smart money thinks a stock will go
and by when.

37. Of course, they are not always right…but there is
some comfort in knowing that they’re putting
their money where their mouth is…and not
some random talking head on TV sharing their
opinion with likely no skin in the game.

38. Once you’re in a position:
• Take note on how the options react intraday,
daily and weekly. Of course, some stock
options are more volatile than others. It’s
important to identify how you react to these
up and down swings. By trading small, you
won’t be spooked out by the random noise.

39. • Pay attention to how the value of other
options in the stock reacted. Could you be
doing better if you bought another strike or
another month? What if you sold put options
instead?

40. • Take a note of anything that surprises you. For
example, are you seeing other call options
being bought in other strikes or months? Are
volatility levels increasing or decreasing? Have
the bid/ask spreads gotten more competitive
or worse?

41. Most importantly, evaluate yourself as if you
had more positions on.

42. • Would you be getting out if you reached a
certain level of losses? If so, would that be the
right decision or would you have gotten
shaken out?
• Would you piecing out and taking profits as it
moved in your favor?

43. • What if what you were playing for actually
happens, will you take profits or get greedy?

44. • If you’re wrong, will you be able to accept that
and move on or will you take it personally and
be stubborn and take in bigger losses. Being
wrong is part of this game, losing money on
trades is part of this game…if you can’t accept
that, then this isn’t for you.

45. • Is your strategy scalable?

46. Again, these early stages are all about discovery.

47. Discovering who you are (and will be) as an
options investor… and how you’ll react and
perform given different types of market
conditions.

48. You’ll discover which type of ideas work best
and which ones don’t. That means keeping a
journal and recording the details of your trades.
This topic has been discussed in greater length
here …if you’d like to learn more about it.

49. There is a ton of noise in the market…trading
small allows you to play out your ideas and
strategies without getting spooked out of a
position. The more experienced you
become…the easier it will be to identify from
what is real and what is noise.

50. Look, you can read all the articles and watch all
the videos you want…heck, you could even
shadow a great trader…but unless you jump in
and start doing it yourself…you won’t fully grasp
what’s going on.

51. A proud father can tell me everything I need to
know about parenthood…but unless I
experience it for myself, it won’t hit home like it
would if I was in his shoes.

52. The combination of a good options education
and real-life experience is going to help you
become better and potentially successful at this.

53. Sorry, but there are no guarantees here.

54. With nearly 10 years of industry experience, I
can confidently tell you that I can help you in
reducing mistakes. As well as, showing you how
to spot opportunities that have a strong
likelihood of success.

55. I understand that most trader educators have a
bad reputation…and I agree some of them are
snake oil salesmen. But that doesn’t mean we
should all be thrown in the same mix.

56. Elite athletes rely on several different types of
coaches and trainers to help them get to the
next level.

57. However, when it comes to option trading and
investing, the general public believes they can
pick up a book on Amazon or watch a free video
on YouTube and they’ll be ready to compete
against the best, brightest (and sometimes
crooked) traders and institutions on Wall Street.

58. It’s not that easy folks, but hard work and
doing the right things will help you succeed.

59. You know, I am a big believer in keeping things
simple. I understand that some of the advice
mentioned in this article may sound too
simple…but believe me it works.

60. If you’re looking for a good starting point to
build a foundation, without a steep investment,
check out Fearless Leverage for Income, a book
I wrote that covers the basics on option
investing…

61. I am also working on a course for those who are
just starting out, something that I wish I had
when I first started learning about
options…probably would have prevented me
from losing $2k on my first trade.

62. In the meantime, our SPX Method is a very
detailed and easy to follow along course, aimed
at helping those who do not have a lot of time
to focus on finding quality opportunities. It will
help you trade smart and prevent you from
chasing the next hot stock in play.

63. If you decided to start off small,
Congratulations!

64. I’d love to hear how you’re doing. It’s always
good to bounce off ideas and thoughts with
someone else who has (or is) going through the
same obstacles as yourself.
I’ll be hanging out in the comments section
below.

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