Sell Options as a Business
The idea of trading for a living – or having your own trading business – is appealing to many people: you get to be your own boss, set your own schedule and work from home while enjoying virtually unlimited income potential.
In addition to these factors, anyone with a computer, Internet connection and a small trading account can give it a try. Unlike many other jobs, no degrees, special training or experience is required.
f you want to become a part-time or full-time trader, it’s important that you take the time to research and plan your trading business; these are essential steps in your overall success as a trader. This is not a profession at which you will become skilled overnight. Traders who start putting their money in the market too soon or without a well-researched trading plan often find themselves back at the beginning, but with a lot less trading capital. Traders who have realistic expectations and who treat trading as a business – and not as a hobby or a get-rich-quick scheme – are more likely to beat the odds and become part of the group of traders who succeed.
Selling options is the Best Business
Warren Buffet states that insurance is the world’s most profitable business. A company sells reams of insurance policies and collects payment for each. A few of those result in claims – which are paid out of premiums collected. The rest is kept as profit.
The world’s most profitable business?
An option selling business runs remarkably similar to this model. You sell a variety of these “insurance policies” across a swath of different uncorrelated markets. A variety of uncorrelated markets like corn, coffee, gasoline and gold ensure that one “claim” is limited to a small portion of your overall “policies.” While you will pay out on a few, the majority should keep feeding you cash premiums every month.
The performance of your insurance (option selling) business will come down to two basic skills on your part:
- Your ability to select “policies” with the highest premiums and least chance of a “claim”
- Your ability to limit the size and scope of the “claims” you do pay
Higher risk policies mean higher premiums paid to you. Lower risk policies are safer, but offer lower premiums as well.
But there is advantage to be exploited. Up to 50% of these “policies” can be overpriced at any given time. That means they will pay you more premium than the actual risk warrants. Identifying which “policies” these are can potentially offer you an even bigger edge – one that real insurance companies don’t have.
Your option selling portfolio functions more like a business than an investment.
You can lose too, of course. But selling options can be a more forgiving business for beginners than some others.
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That’s option selling – in a nutshell. Less like an investment, more like a business. It will correlate with nothing. Not even commodities indexes. Markets move up, down, sideways, Presidents come and go. Wars start and end. Civil disturbances flare, rate hikes or non hikes. And guess what? The insurance business moves steadily along.