Making money with options is not easy (otherwise, everyone would do it), but this does not mean it’s impossible. The key lies in knowing how to make money with options in every scenario, knowing that there are strategies suited for different markets. This article answers questions like “how to make money with options?” or “can you make a living trading options?”, and helps you approach options trading with confidence.
Key takeaways
- You can surely make money with options, but there isn’t an easy one-size-fits-all strategy. The best options trade depends on the market scenario you face and your personal risk tolerance.
- It is essential to understand the basics of options and conduct thorough research before committing capital.
- Options trading offers profit opportunities in any market condition—bull, bear, or sideways—by using adaptable strategies and prioritizing risk management.
How to Make Money with Options?
You can surely make money with options, but there isn’t an easy one-size-fits-all strategy. The best options trade depends on the market scenario you face and your personal risk tolerance. Success requires more than just luck—it’s about understanding key principles and applying them thoughtfully.
Start with the basics. You need to know how calls and puts work. This knowledge allows you to select strategies that match your goals, whether it’s generating income, hedging risk, or speculating on market moves.
It can take 1-2 years to develop a consistent trading style. During this time, you only need a small amount of funds to support your learning, focusing more on gaining experience rather than profits.
The exact amount doesn’t matter as long as it’s something you can afford to lose while refining your approach. After gaining around 2 years of experience, you’ll need to work toward a significant trading capital, possibly $100K or more, depending on your chosen style.
When thinking about how to make money with options, there’s no universal number. For some strategies, you may need just a few hundred dollars, while others, like selling options, might require significantly more. This variation highlights the importance of asking, “Can you make money trading options in your chosen market conditions?” Even better: ask yourself, “in which way do I want to make money trading options?”. Focus on balancing your risk tolerance with market conditions.
The next sections will show you a few simple examples of how to make money with options in different market scenarios, answering the common question: can you make money trading options?
How to Make Money Trading Options during a Bull Market
Let’s begin with an example that shows you how to make money with options in a bull market. A bull market occurs when asset prices are steadily rising, driven by strong investor confidence and optimism about the economy. These conditions open up opportunities for traders to profit by capitalizing on upward price movements.
One popular strategy in a bull market is using a long call. This involves buying call options, which give you the right (but not the obligation) to purchase a stock at a specific price (the strike price) within a set timeframe. This strategy lets you benefit from rising prices without committing to buying the stock outright.
For instance, suppose you expect Citigroup (C) to rise above its current price of $71.86. You buy a $73 call option expiring in a few weeks, costing you $79. This is the profit and loss of your strategy, as found on our screener for the options market:
As you can see, if Citigroup moves above $73.80 by the expiration date, your profits will grow linearly as the stock price increases. The most you’d risk is the $79 you paid for the option, while your potential gains could be much higher.
When considering how to make money trading options in a bull market, this approach offers a lower-cost way to benefit from price growth. Can you make a living trading options? Probably not, but being often right about trading long calls will likely give you a good return.
How to Make Money Trading Options during a Bear Market
Options let you profit from a bearish market too, where asset prices are steadily falling, often driven by economic uncertainty or negative investor sentiment. A great strategy for capitalizing on declining prices is using a long put.
A long put option gives you the right to sell a stock at a specific price (the strike price) within a certain timeframe. This strategy allows you to benefit as stock prices drop.
For example, let’s stick with Citigroup (C) (currently trading at $71.86). Suppose that, this time, you expect the price to decline. You could buy a $73 put option, expiring in a few weeks, for $288. Just like we did with the previous example, here is the P&L of this specific long put strategy:
What do we get from the image above? Well, if the price of Citigroup drops below $70.09 by expiration, you start making profits, and your potential gains increase as the price falls further. Your maximum risk? Just the $288 premium you paid for the option.
How to Make Money Trading Options during a Sideways Market
Finally, as you may guess, we’ll show you how to make money with options when the market does not move. We’ve covered directional markets, but a sideways market—where prices stay stable—also presents opportunities.
A long straddle is one way to profit in this scenario. This strategy involves buying both a call and a put option at the same strike price. For example, if Citigroup (C) is trading at $71.86 and you expect minimal movement, you could buy a $72.5 call and put option expiring in a few weeks. This would cost $478.
Here is the P&L of your long straddle strategy:
The risk? Your maximum loss is $478, which happens if Citigroup closes at exactly $72.5 when the options expire. However, your potential profit kicks in if Citigroup’s price moves significantly above $77.28 or below $67.72—allowing you to earn on volatility, even in a sideways market.
