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Learning how to trade options takes time if you want to do it successfully. Unfortunately, most courses online are designed to take your money and not help you. You should not be paying for an options trading course. Here is how long it really takes to learn how to trade options.
Learning how to trade options takes time. Most professional options traders have been trading options for several years and have made a career out of it. If you follow a structured learning guide then you can learn how to trade options professionally in about 1.5 years of studying.
However, you need to be careful with options trading. It is possible to lose all your money or even owe money to the broker if you’re not careful. This is why learning how long it really takes to learn how to trade is so important. If you can set reasonable expectations then you will succeed without losing your shirt.
Here at Chronohistoria I teach people how to invest successfully. Lots of websites online will sell you the guide on investing, all my information is free and I have been doing this for over a decade professorially.
Without further ado, here is how long it really takes to learn how to trade options.
Understanding The Options Contract Before You Trade: 4-6 Months
In order to learn how to trade options successfully you need to understand how stocks and options differ. Too many investors see the massive profits that can be made in options but don’t understand how they work. Depending on how much you know about the stock market and its products this process might take you 4-6 months of time to learn
Here is the basic difference. A stock is actually a percentage reflection of ownership of a company. When you buy a stock you are actually buying a share of the public stock. This means that you don’t actually own a portion of the company but rather own a portion of the company which was designated as publicly traded shares.
Stocks can go up or down depending on what the market values the company’s stock as. Stocks have no expiration date and are considered an asset in an overall portfolio. Simply put, you can hold onto stocks for nearly forever.
Options on the other hand are contracts. Every single contract in the world has an expiration date, options are no different. This means that the option contract has a lifespan. When you buy an option contract it slowly decays in total time available as the contract reaches expiration date; this is called Theta decay.
The Option contract itself gives you the right to use the buying or selling power of 100 shares. This means when you buy an option contract you are reserving the right to buy or sell someone 100 shares of a stock. You collect the difference. However, in order to obtain this contract you have to give the stockholder of the 100 shares some money to reserve their buying and selling power. This is called the premium, and it is the price you pay for the option contract.
If you want a full rundown on options trading check out this article by clicking here.
The process of understanding how options contracts work should take you about 4-6 months.
Learning How To Buy A Call And Put Option Contract: 1-2 Months
Another step on the timeline of learning how to trade options is learning how to buy a call option contract. This process should take you about 1-2 months of time to learn.
The reason it takes so long is because you have to understand how to price out a stock’s movement. If the price hits a certain point by a certain time then you should make x amount of money.
On top of this estimate you also have to factor in the market’s expectation of volatility for the remainder of the call option contract. This process will take some time to learn.
The reason you need to spend time and learn how to accurately price options contracts is because you will have to set up a portfolio of contracts with their expected outcome. This will allow you to track your progress and make adjustments depending on your results.
After you spend about 1-2 months learning how to price a call option contract you can begin to think about trading. However, I have not placed an order yet. Instead you should practice calculating out call contract orders and see how accurate you are to their real price.
After learning how to buy a call option contract you should begin to look into how to buy a put option contract. The pricing methodology is the same but instead of predicting the stock will go up you are instead betting that it will go down.
Spend some time learning how these price movements impact the options contract price. This process is going to help you make more informed decisions and ultimately lead to less failure later on so it’s important you don’t skip this step.
Learn How To Sell Options Contracts And The Risks: 3-5 Months
The next step on the timeline of learning how to trade options is learning how to sell options contracts. It’s important that you don’t buy or sell any option contract until you’re ready and know the risks of both sides. This process will take you about 3-5 months.
At the end of this step you are ready to begin researching potential option contracts. However, I don’t want you selling options until after you understand how to sell options contracts. This can lead to disastrous consequences.
When you sell an option contract you are entering into a contract where you are giving someone the right to sell you stock at a price in the future. This has tremendous risk to you if you’re not careful.
Imagine you enter into a contract to buy 100 shares of a stock at $500. If the contract is exercised then you will have to buy the 100 shares at $500 which would cost you $50,000. Why would anybody do this? Well the answer is that you gain the premium of the option contract.
Remember, when you buy an option contract it costs money. Well that money goes to the other side of the contract, the person who sold the contract. So if you sell contracts you are given the premium immediately as cash.
Selling options contracts is the secret weapon of the market. If you know what you are doing you can make huge returns off selling options contracts to gamblers in the market. However, it is a gamble on your part.
The best part about selling options contracts is that you control nearly all the variables of the transaction. You can look at the implied volatility to determine what the chances are of a stock swinging out of control.
For example, you can sell 1 option call contract for $600 of the U.S SPY. Right now it is priced at $371. If the SPY ever goes above $600 then you will have to pay $60,000 to buy 100 shares. However, if the contract only has a lifetime of 100 days that would mean the U.S economy would have to double in value in 100 days. That’s not going to happen.
However, you can sell the contract and gain the premium off someone who thinks it will. Statistically people who sell options contracts are much higher to make money in the long run.
This process of learning how to sell options contracts professionally will take you about 3-5 months to learn. You will have to learn how to price the contract, price in the theta decay, and also price the overall volatility swings.
Learning How To Find Opportunities In The Market: 5-11 Months
This is where it all comes together. You need to learn how to spot opportunities in the stock market for either massive swings in price or a consolidation of implied volatility.
This process will take you about 5-11 months or even longer to learn how to do it efficiently. The best way to start learning how to do this is by becoming a sector expert.
For example, my strongest sector is the energy sector. I will constantly read and call energy companies to learn of their latest developments. What inventions are making headway and what companies are falling behind. With this knowledge I can begin to spot opportunities in the market.
However, you can apply this to almost any sector that has options contracts associated with it. I know several professional traders who specialize in consumers, tech, defense, and many other individual sectors. Within these sectors you can even micro-specialize to become an expert on one small facet of the sector.
For example you might become the subject matter expert in semiconductors. This would allow you to look at what companies were going to explode in value over the next coming years. After discovering this you could place an option trade and make $50,000 in only a couple months.
However, this process will take you some time to learn how to do it properly. I suggest you check out some of the other articles on this site to learn more about some cool methodologies. One of the best is the global-macro, you can read about it here.
Expect to spend about 5-11 months learning how to spot opportunities in the market.
In total it’s going to take you about 1.5 years at the fastest to learn how to trade options contracts. This is a long time for most people but at the end of the day you can make massive amounts of money once you know what you are doing.
Here at Chronohistoria I routinely publish articles that go over investment methodologies, research, and tips/tricks of the trade. If you liked this article feel free to subscribe to the free newsletter and share around the internet.
Further, you can check out some of the other articles below.
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