Options Jive

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Being Realistic About Profitability

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

A popular question asked from the Research Team is "How do I make $XXX per month?" While there are no guarantees in trading, this segment helps a trader run through the math in order to get a ballpark estimate.

There are several factors to consider:

  1. Amount of extrinsic
  2. Profit targets
  3. Strategy success rate
  4. Drawdowns, magnitude, and frequency
1) Amount of Extrinsic

The first thing to consider is the amount of extrinsic value needed. If we wanted to make $100 a month, we will need at least $100 in premium.

2) Profit Targets

If we manage at 50%, we will need at least double the amount we want to make.

3) Strategy Success Rate

Depending on the success rate, we will need to take that into consideration. If a strategy has a success rate of 90%, then we will only have success (on average) in 10 or 11 months of the year.

4) Drawdowns, Magnitude and Frequency

Drawdowns, magnitude, and frequency of losses should always be taken into consideration.

For more information, watch the segment. Tom said, "Had we had this information when we began our trading careers, our results would have been very different."