Tag Archives | trading for a living

Trading Iron Condors for a Living

Hi Mark,


I'm Roberto from Italy, sorry for my bad English.


I want to thank you for the professional advice that you give to us.  It's very useful; I bought your "lessons of a lifetime" and it's very
useful too, thanks again.


I know options trading since 2006, but I made very few trades in the
real market, losing a couple of hundreds of $. I take a break from the
real market and go back to study, and I realize that I always need to
study!


My question is: in your opinion it's possible to live by trading? Do you
live by trading? Do you know someone who lives by selling iron condors?
And last but not least, do you know some hedge fund that operate in
options, especially iron condors?

Many thanks from Italy.

I follow you every day.

Roberto

***

Buona giornata, Roberto

Thanks for reading the blog, and there is nothing wrong with your English.  Yes, the education process, or the need to study, is something that does not end.  Just think about how professional athletes – Tiger Woods for example – always practice. 

Yes, it is possible to live by trading.  But, it is difficult.  The very first truth is that you must prove to yourself that you are a profitable trader – consistently – before you give up your job and try to trade for a living.

Here is the part that most people fail to recognize:  Novice investors believe they can quickly easily to make enough money to support themselves and their family.  Why would someone believe that to be true?  If you want to determine if you can do it, then you must first make money by practice trading.  That means  using a 'pretend' account, or paper-trading.  If you are successful, and ONLY if you are consistently successful – then is the time to think about trying to trade for a living.

If you cannot make money in this account, there is no reason to believe you can do better with real money.

Next consider your bankroll.  How much can you place in your account and still have enough to meet your daily needs – just in case you don't make any money right away?  Next consider your rate of return.  If you can earn 20% per year, consistently, then you would be a very successful trader.  Some people do far better.  Most do not.

Putting all that together, if you have $100,000 to invest and if you earn 20% per year, can you live on $20,000?  Probably not.  And don't count on earning that 20%.   It's not available to most traders.

You tell me.  Can you make a living as a trader?  Are you willing to devote the time to practice?  Do you have enough cash?  Are you alone, or do you have a family to consider?

If you can meet those difficult barriers to entry, I guarantee that the number one factor that will determine your success (or failure) as a professional trader is your ability to manage risk.  That means you must trade without emotion.  All decisions must be ruled by logic.  You cannot get greedy and you must act decisively when your positions get into trouble. On the other hand, you cannot just take a loss every time the market makes a small move.  Can you do that? Can you handle the pressure?  Practice and find out.

Get started

Practice trading.  Do not use real money.  Open a few different iron condors at one time and manage them.  Take this process seriously – do not look at this as 'only' play  money.  To you, it must seem to be real money.  Succeed at that – and you have a chance. 

Roberto – you may be able to do this.  But not everyone can.  That's why you must know how good you are before making the commitment.  You do not have to be the best.  You just have to be good enough to make enough to meet your needs.


Your questions

I do not live by trading alone.  My positions are not large enough to earn enough cash, unless I get very lucky.  And that's fine.  I am at the stage where I cannot afford the risk. 

Many people claim to live by trading iron condors, but I do not personally know anyone who does that.

There are hedge funds that trade iron condors.  I don't know the names of any.   I suggest that you do NOT pay someone to trade iron condors for you.  That includes hedge funds.  They take 20% of the profits, plus  more in fees, and there is not nearly enough profit left for you.  Most hedge funds require that investors be wealthy before accepting them as clients.

I just published a page that discusses the topic of getting started as a trader.  You may find it helpful.

790


Lessons_Cover_final

Lessons of a Lifetime:  My 33 Years as an Option Trader,


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What Other Bloggers are Saying

For anyone interested in becoming a full time trader, this blog post by Charles Kirk (The Kirk Report) offers an excellent insight into the trader's world – pros and cons.  Here's a sampling:

PROS

As an independent trader, I set my goals and I'm in charge of my own
destiny. I don't rely on any other person for how much money I make or
how I make it. Other people's opinions of me are irrelevant to my own
destiny. At the end of the day, bottom line trading results (not office
politics) are all that matters.

It is always interesting and I'm NEVER bored

I can live and trade from just about anywhere in the world.

Trading independently offers level of personal freedom that isn't
present in most jobs.

CONS

You've got to bring your A game to the table each and every day. There
is no sitting in a cubicle playing solitaire, visiting with facebook
friends…

Past success means absolutely nothing. You are only as good as your next
trade

There will be little to no respect or understanding for what you do for a
living. People will assume you're a "day trading gambler."

There's much more

***

Frank Curmudgeon (Bad Money Advice) offers an interesting perspective on the 'flash crash' that occurred two months ago (May 6, 2010).

"Regulators announced investigations.
Pundits theorized. Both houses of Congress held
hearings. And two months later we are no closer to finding the
person or persons who screwed up to cause this."

The exchanges canceled all trades made between 2:40 and 3:00 at prices
more than 60% from the price at 2:40. 10,000 trades for 1.4 million
shares were busted…  Breaking extreme trades sets a bad precedent that may make things worse
next time
.
His perspective tells him that:

What nobody seems willing to say out loud about the events of May 6 is
that, by and large, the market worked the way it was supposed to.

734


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In the July issue (available July 19, 2010) the regular feature 'Pro & Con' will be renamed 'Wolf Against the World.'

I'll be taking a stance and publish more than one response that contradicts my position.  Join the debate by suggesting topics for future discussions.

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