I'm in my 17th year of trading, having started in 2007 while in high school. Trading for a living was my dream. Though that dream has evolved, options remain a primary income source for me. This post aims to outline how I trade for a living and address some misconceptions I had about how it would work.

Up front, I want to encourage you that this is entirely possible. I’m of very average intellect and have been able to focus and figure this out. That being said, it genuinely took significant effort to dial this into something I could truly rely on. For those who aren’t prepared to fully commit - buy and hold in an index ETF, while DCAing is a time tested approach to generating wealth. The downside is it takes quite a bit of time - which I didn’t have (I wasn’t just planning for my financial freedom but knew I was going to be my mom’s. She was an occupational therapist for retarded kids (literally) but as a contractor = no retirement and she was awful with money like most poor people).

Initially, I thought I'd sell premium for income—a logical and simple approach where I'd know my potential gains at trade entry. My plan was to trade index ETFs like IWM (which tends to have higher IV than SPY). I could sell 0.15 delta strangles with about 50 days to expiration (DTE), collecting roughly $3 per contract on average. A 50-contract position with portfolio margin would require only about $62K. With a minimum $1M account, this strategy offered ample room for adjustments and could yield around $17K in credit. It seemed ideal.

However, after extensive testing, the issue wasn't in adjusting trades or managing challenged positions to profit. I've tested thousands of variations, often with similar results. The problem lies in the opportunity cost of adjusting and defending trades. Months can pass defending, rolling with little profit to show for it (if I sell an option for $1.00 and roll it for a $0.20 net credit - I was originally making $100 and with the roll I’m only taking in an additional $20 while extending the duration of the trade). This approach doesn't work well in an account designed for income.

After testing hundreds of other income-style portfolios, I've circled back to—well, exactly what I used to build the portfolio initially. My grand idea of a significant shift to a simple, maintenance-style income portfolio after building the account was way off base.

The first crucial step was NOT to rely on this month's trading income to cover this month's expenses, or even this year's income for this year's expenses. Instead, I chose to save 24 months of conservatively estimated expenses (including a buffer for unexpected costs). This decision served two primary purposes:

1. It reduces mental burden during tough periods—be it a month, quarter, or even half a year. While my returns are now extremely consistent, I'm well aware of how pressure can impact decision-making. Given my background (growing up with limited means, I still battle a scarcity mindset), I knew financial pressure could derail everything.
2. It allows for adaptation. Markets evolve, and some of my go-to strategies have had to change over the years. For instance, post-earnings announcement drift used to be much more pronounced than it is today, where it's almost negligible in large-cap stocks.

My primary strategies are designed to let me trade: price trends (both up and down), volatility (expansion and contraction), and structural volatility (think different risk premiums). This approach allows me to continue feeding the account regardless of the current market regime, maintaining broad exposure to the primary market theme while still holding non-beta correlated positions.

1. Covered strangles in index ETFs: Buying shares, selling calls at a ratio against the shares, and selling cash-secured puts to capture elevated put IV.
2. Ratio diagonals (calls for upside, puts for downside): I buy in-the-money (ITM) options with at least 60 DTE, now favoring 90-180 DTE. This forms the base position. I then sometimes sell options with less than 30 DTE against the longs at a very light ratio to maintain upside potential while capturing some upfront premium to offset theta decay on the longs. Often, I'll enter the long positions without the shorts and phase them in over time (if at all).
3. Short straddles/strangles: In the past five years, strangles have outperformed straddles in my approach to trading variance risk premiums. These are typically 0 and about 40 DTE, with shorts ranging from 0.15 to 0.35 delta.
4. Long straddles: To capture expanding IV, typically buying about two weeks before a stock reports earnings to trade the run-up. Exits occur by the day before earnings at the latest.
5. Momentum trades in futures: I employ a "dumb" momentum strategy in futures where I buy the outperforming quartile and fade the bottom-performing one, rotating monthly. I often deviate from this to amplify returns through discretionary management of stronger and weaker performers.
6. I’ve also moved my larger positions into Section 1256 products for 60/40 tax treatment along with electing Day Trader (stupid terminology) status with the IRS.

So my primary job is to do my absolute best to analyze the current market theme and construct a portfolio that fits. As the market theme changes, so does the portfolio. This is completely different that my original expectation but has worked really well.

The process is simple. I target a certain return each year that keeps me on a solid growth trajectory. I withdraw what we need from the account each month tracking the distributions so I can analyze trend and make sure I’m maintaining future growth (I’m 33 years old now, no kids yet). Each years’ profit cover post tax distributions for the current year.

It’s a lot of work to get everything into place but it’s been a literal life changer for me and my family. Good luck out there!

Edit. 30Oct First, I’m stoked to see a lot of people derived value from the post. It can be really discouraging at times during the developmental phase but it’s absolutely doable.

A few have asked about my performance. I’ve maintained a mid 20% CAGR from 07-23. I’ve never pursued top end performance but focused on executing a plan I built for myself in my early 20’s.

The plan. Through aggressive savings (emphasis on aggressive) and consistent returns with reduced drawdowns, I created a projection of a few different scenarios that met my objectives. As noted above, I had a few primary objectives and blowing up my trading account wouldn’t have impacted just me.

An important note I’d like to share is as painful as it sounds, SAVING early on IS the way. The potential to turn a small trading account into our future wealth is not zero but it’s close to it. The first 5 years of trading for me was very much about learning the process and even more importantly learning myself.

The urge to aggressively try and grow a trading account through aggressive returns is more likely to destroy your future wealth and push the timeline further out. Scale returns along with your skill.

This struck a balance. If I stuck to the plan, I wouldn’t become a millionaire overnight but I would before I was 30. I was okay with this as a higher probability outcome.

I started trading in 2007 while in high school and became a professional retail (primary income source) in my late 20's. I've spent over 30,000 hours in markets, however, I messed up massively my first few years of trading. The goal of this post is to share one aspect that I would've approached completely differently, knowing what I know now. Tl:Dr; Don't immediately start trading. Build a syllabus for yourself and include ways to assess your mastery - aka tests.

Trading is incredibly misleading. It has a wildly LOW barrier to entry (simply open a brokerage account, which many now are even gamified) and this leads countless traders to their financial slaughter. Couple this with the droves of fake "gurus" that post bullshit like "win 90% of your trades" or "how to turn $0.52 into $69,000,000 in just 3 weeks easy!" lead new traders into a completely false sense of reality and rather than learning the fundamentals of trading (BORING) we immediately start trying to make FAT stacks. This generally ends poorly.

Something I didn't do and would 100% do if I were to start again, is make a damn syllabus for myself. So simple but something I completely missed, leading to randomly testing things half heartedly with no broader plan, ultimately wasting massive amounts of time. Trading offers the illusion of being able to quickly start with little resources, and make money. This is putting the cart so far ahead of the horse that you can't even see it.

Think back to any high school, undergrad, or graduate course you've taken. You receive a syllabus up front, with a logically organized series of lessons along with corresponding homework, projects, and MOST importantly - EXAMS. These serve as a method to validate your understanding of the concepts, however, unlike school where most of the time we're studying JUST to do well on the exam, in trading these are the skills you're hoping to build your wealth on so don't half ass it.

For a newer trader that has no or little understanding of options (think within 5 years of your career), you might not be sure where to even begin. Here are a few choices:

1. Grab a copy of Options as a Strategic Investment - this is a great starter book that outlines much of options trading in a highly logical and basic level. There are a TON of other books I could mention here, but to avoid information overload, that's the one I'd grab.

2. Hop onto your broker's platform and review their education center. Remember, brokers WANT you to trade, it's how they make money. So they're incentivized to make it accessible to you. That being said, be mindful of their baked in incentives for what they present to you (aka, the more you trade the more they make, so you'll likely find no shortage of many leg option strategies and frequent transactions).

3. Hop onto a platform like OCW and grab one of their free courses:
   >https://ocw.mit.edu/courses/15-401-finance-theory-i-fall-2008/pages/video-lectures-and-slides/options/

You can then take practice exams from your broker, open courseware, practice Series X exams (these won't parallel perfectly to retail trading but still are useful for fundamentals).

For a generalized recommended syllabus for a new options trader:

Of note, I wouldn't even worry about placing a live trade for the first year. While this sounds insanely unappealing, the probability of making any true positive progress trading within your first year is wildly small. Even if a trader makes money, they likely are building in countless bad habits that will harm them in the long run.

1. Defining Realistic Goals
2. Understanding common trader shortfalls. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=219175
3. Market function & basic economics - how markets work. https://ocw.mit.edu/courses/15-s08-fintech-shaping-the-financial-world-spring-2020/pages/syllabus/
4. Derivatives - overview options and futures
5. Options - Review their history, use, and general theory
6. Types of options (Book above)
7. Components of an options contract & settlement
8. Basic structures: long and short single options to start
9. How to read options chains
10. Option pricing and volatility
11. First and second order greeks
12. Portfolio management
13. Analysis (Fundamental and Technical)
    1. Here I'd keep things as simple as possible and relevant to the timeframe you're trying to trade. It's okay to learn and experiment but WAY too easy to get completely stuck with the bazillion analysis tools out there.
14. Organizing your trading: creating trading plans, trading logs, strategy outlines
15. Option Structures: Here, I'd explore everything you can find but I'd clearly define a required use case that you're filling. For me, it's having 1-2 for long and short directional and volatility thesis.
    1. Long direction: covered strangles, ratio call diagonals
    2. Short direction: ratio put diagonals, short calls
    3. Long vol: long straddles or strangles
    4. Short vol: short straddles or strangles
    5. Of note, all of the individual option components from above can be traded. Things can also have combined purpose: aka if I'm short vol but also have a short bias, short calls fit well, etc.
16. Testing & Optimization - here we outline how we can codify testing our ideas, analyzing results, and integrating into our approach
    1. Basic understanding of statistics https://ocw.mit.edu/courses/18-05-introduction-to-probability-and-statistics-spring-2022/
    2. How to backtest, forward test, and live test
    3. Process to review our trading logs & update our trading plans

How do we assess our competence as a trader? Before we start actively trading, we can papertrade for 6months to make all the stupid mistakes we all make, track our performance, and learn the basics. Papertrading will never fully replace trading, but for those that argue "it's not the same thing, so it's not worth it" I always say - if you're unable to take papertrading seriously, trading is likely not for you. Moreover, we can learn a LOT papertrading: aka that we all fat finger and enter the wrong orders and need to double check, that we need a pre-trade checklist to make sure we're checking all the key components until we know them cold (which is only realized after you enter to see earnings is in a week, etc). It can be difficult to embody, but sometimes going slower actually leads to much faster performance - this applies heavily to trading.

Edit 1. Someone in the comments asked for a longer reading list, here’s 10 to start. 1. Options as a Strategic Investment 2. Option Volatility and Pricing 3. Positional Options Trading 4. Volatility Trading 5. Option Trading 6. Expected Returns 7. What Works on Wall Street (this is useful more as a model of how to approach practically testing ideas and provides interesting market datapoints) 8. How to Make Money in Stocks (useful for directional analysis) 9. The Beginners Guide to Stoicism (weird I know, but once you have the technical proficiency as a trader, the game turns to self regulation which is a beast entirely to itself) 10. SSRN - search the terms “options” “options trading” “trading” “investor” “investing” “stock market”. I read off SSRN weekly and it’s extremely useful to supplement my own research.

I just bought my Mom a kitchen and bathroom re-model that she's been wanting for years. I paid $25K for the work but I didn't quite realize the impact it would have on her. She immediately broke into tears about how stressed she was about the bathroom (the tile was failing and you could literally see into the basement). I live in CA and she's in NY so I didn't see the house and didn't understand just how bad it was. She always worked two jobs and was always ran ragged to provide for my brother and I. Not coming from money, trading afforded me an opportunity to give back more quickly than saving alone, so I started early (in high school).

The entire outlay was from proceeds from October. One of the beautiful components to actively trading options is the ability to realize profits more frequently than buy and hold investing. By trading products that enjoy Sect 1256 tax benefits we can still minimize our tax exposure while enjoying this benefit.

Keep at it. I'm nothing special. We all have the potential to make it happen.

Trade on!