I have been trading off and on for the better part of eight years now and with very little to show for it. I started at 18 with penny stocks, then mutual funds, individual equities, spot forex, and now options. Like most traders, I’ve blown up more than my fair share of accounts by taking on way too much risk with way too much leverage and way too little knowledge. The purpose of this page is to develop a sober, calculated approach to equity options trading grounded in theory and risk management. As I learn, hopefully you will too.

The Inspiration

Over the past year I have spent a lot of time listening to the guys at TastyTrade, who if you’re not familiar are former floor traders that run a really informative 8 hour long online TV trading channel (or as they put it, “alternative financial news network”). They have a ton of great insight and knowledge that they share every day and I highly recommend you tune in if you don’t already. The problem I have is that I feel my small account size makes it impossible to trade like they do. It seems like most of their viewer base has accounts in the $50,000+ range, so it’s understandable they wouldn’t spend all day catering to the broke boys in the crowd. We’re going to try and fill that gap here.

The Setup

Every broker I know of requires at least $2,000 in capital to trade spreads. We will start this account with $2,500, which is no small amount for me but in my experience is the absolute floor on capital. Anything less and we are restricted to what is what is often referred to as “level 1” permissions; that is, long puts/calls only. The leverage available with options makes the risk/reward tempting, but these types of decaying, directional bets often turn into lottery tickets that hardly pay out. The extra $500 buffer off the floor will allow us to put on an initial couple of trades and still have some wiggle room. If you don’t have that kind of money available, I get it. Start saving and keep learning until your account is ready. If you try and rush it (like I did), you’ll end up throwing money away.

The Plan

We will initially focus on non-directional strategies (i.e. trading volatility) on a small number of highly liquid underlyings. It is very difficult with options to be profitable in the long run with directional strategies, and I have found over the last year that these have been my worst performers.

The Goal

The initial goal is to grow the $2,500 initial capital outlay into $25,000. At that point we will be at the PDT threshold and have other strategies and markets available to us. The longer term goal is to become better, smarter traders.