Real-World Success Trading Options In The Long Run?

[DaveN]

Hi All,

I've been asked by a few members in private conversations/messages about success and longevity in options trading. I think this might be an important and probably very interesting topic for a number of people in this Trading - Options category.

We've certainly gotten a glimpse into the success for members like Steve G. and Amy M. and their willingness to share their ideas, and it would be great to hear from a broader group about their experiences as well. Nope, not asking for anyone's strategies though....

Below is an excerpt from a conversation I had recently, and I'd love for people to chime in, contradict, or share their perspectives. I think this could be helpful for all options traders.

"Yes, I do trade both Calendars and Butterflies (BF's as in Balanced Butterflies, and BWB's as in Broken Wing varieties). Also, of course, Verticals both long and short as adjustments.​

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I've developed my approach to the markets usings Options in various combinations depending on my market outlook. So, I have a fair amount of broader market perspective as well as discretion added into my trades. I'm not a strictly mechanical trader of these option combinations.​

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This long answer to your question is yes, I have been fortunate to have had very good success with these. A more general answer is that these combinations, in a raw form (e.g. trade a Butterfly system by the basic rules and follow those strictly) should yield from -5% to 20% per year. Some years are better as the market action is better for a specific strategy. It's a great way to learn and understand the nuance of the instrument or combo that you are trading.​

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As traders get more experience and trade with some guided discretion (not speculation but rather more of a slight leaning of market-neutral trades one way or another), they can do even better. It takes time and work, but the payoff can be quite nice. Experienced option traders of these basic combinations can and generally will do 50% or even better in a year. ​

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A last thought here is that the percentages I'm suggesting are portfolio wide. When you make an option trade, it has a certain return based on the maximum margin for that trade, or a larger Planned Capital amount for the series of trades (campaign) in the Expiration Cycle. People sometimes quote those individual returns which can be very high and misleading. You'd never, or should never, trade a large percentage of your account in a single trade. We all know how that will end up at some point. But rather, trade a small percentage or a "reasonable" percentage (check out the Kelly Criterion if you are interested) of your total trading account on a given trade, or campaign. Then, calculate your return based on the total amount in your trading account to get a portfolio return."​

Does anyone have perspectives or other insights they'd be willing to share?

 

[Marcas]

I think you've selected good traders. I follow neither but from their talks I conclude they know the craft. To bad they are not sharing on the forum.

My perspective.
Short, but I've talked about this few times already.
If you want to be an options trader do not focus on a single strategy, no matter how good BT are and no matter how good your life results are. Rather learn as many strategies and techniques as you can. Study them and compare. With time all strategies will blend in an you will be trading not any particular strategy but be simply trading.

Courses and services can be helpful and save some learning time. Observe, learn both what to do and what not to do. Choose good teachers (hard). With time you discern between 'talkers' and 'traders'. Do not blindly follow any guru. Even if they are right they omit many aspects of trading - they have to. Understand why they are doing what they are doing, not what.

Find what suits you best in trading but when bored - switch to something else where you are forced to stay focused and proceed with caution. You learn a lot this way.

Learn risk management^2

Ofc this is not universal path for everyone but for a solo, retail trader it should work ok.
imo

 

[GaryB]

DaveN, I've wondered the same. How many individual options traders are truly profitable in growing a decent sized nest egg over a decade or so. Is anyone willing to share approximate portfolio % returns over 5 or 10 years? Not the theoretical return a strategy might have had, but what they actually did. Or point me to the forum where they do that? I get that someone who really knows their options craft 'ought' to earn 50%, but how many really do, consistently? Or are we all out there limping along, searching for the holy grail?
I wonder about it when I see all the different services and cleverly named strategies that come and go, both here and elsewhere.

 

[status1]

I think in order to be successful you have to adapt to changing market and underlying conditions
It's difficult enough to learn the different options strategies with their individual nuances and sometimes subjective adjustments when you are a beginner so showing the first 5 - 10 years portfolio returns of a beginner may be quite different than someone who has mastered the trade and can adapt to different conditions
Ten years ago the SPX was around 1400 now it's more than double A 1-2% move per day I think it was a rare event so comparing a traders portfolio back then to one today might make a big difference so a strategy that worked well back then may not work as well these days unless you adapt and make some changes to continue to make the same portfolio returns

 

[DaveN]

DaveN, I've wondered the same. How many individual options traders are truly profitable in growing a decent sized nest egg over a decade or so. Is anyone willing to share approximate portfolio % returns over 5 or 10 years? Not the theoretical return a strategy might have had, but what they actually did. Or point me to the forum where they do that? I get that someone who really knows their options craft 'ought' to earn 50%, but how many really do, consistently? Or are we all out there limping along, searching for the holy grail?
I wonder about it when I see all the different services and cleverly named strategies that come and go, both here and elsewhere.

@GaryB , this is a tough one. Anyone who is selling something is highly regulated (whether they fully understand that or not) and is prohibited from posting their returns or performance except in very specific and controlled ways. Even so, anyone who has been around trading for, say two months, probably already has a sense that they shouldn't believe it. Sales puffery, I think, or cherry picking trades or results. Misleading.

For individuals not selling anything, well, if successful, that just sounds braggy. Also, in public forums, it opens the door to an onslaught of requests, demands, and expectations. Also, attacks and flame wars. I've watched a number of forums over the years turn ugly and become garbage-ridden.

Really, there's no upside.

What I've done over the years is befriended many traders, shared ideas, had discussions without expectations. From that, someone can get a sense or specifics (if someone is willing to share results confidentially) over a potentially broad range of traders. This approach has helped form my perspectives over time.

I've never seen a forum or public group where this is shared, except in cases which are suspect....