I remember when I first started trading options. The most intimidating part of it all was taking that first trade. My heart was pounding, part fear, part excitement, even my palms felt itchy. How would I measure up? I know that the hardest part about being a new trader is watching all the experienced traders around you supposedly making boat loads of money. You quickly start to assume that to be a pro, you have to make large trades, find the perfect moves and just got for it. You have to just find a setup, risk it, set your stops and targets, close your eyes, say a little prayer and hope for the best.
After years of ups and down, I learned the hard way that reality is very different from the image. The good traders, the truly successful ones I know, are very reserved. They are even tempered, hardworking, humbled by the markets and they just grind it out day after day. If you love trading like I do, then making little by little will be very satisfying profession.
If I could go back and advise my newbie self, I’d tell him to start by selling vertical spreads out of the money, opposite the direction of the stock.
For example, on Tuesday (2/2/16), $GOOGL was trading at 797, and had broken an ATR trailing stop to the downside. Instead of listening to the traders around you buying deep in the money puts, go and sell the 815-825 call spread. It was about 2 dollars. That way if your chart analysis proves incorrect you still have time working on your side. The stock would have to rally 18 points in 2 days just to start losing money.
I know a lot of traders that ONLY trade this way. In fact almost every trader that has lasted as long as me is a premium seller, not a buyer. It’s not sexy, but it is consistent, profitable and immensely fulfilling.