Kirk Du Plessis 2 Comments. For many people who are beginning options trading, they make the mistake of investing too much of their money in the new business.
Before you even think about trading options or any other investing for that matter , it is essential that you have set aside an adequate emergency fund to prepare yourself for the unexpected events.
Since an emergency fund is designed to protect yourself in case of an emergency, that cash should be easily accessible in a highly-liquid savings account or money market fund. Check out our post on the top 8 places to park your cash for ideas.
Under no circumstances should you think about investing these funds in options; given the risk management characteristics of emergency funds, this cash should only be placed in accounts that have very little risk attached to them. And never make any excuses as to why you "need" to take money out of it. It shouldn't be used for a new car purchase or a new iPad. Once your emergency fund is fully funded, you can start to think about the cash that is available to you for options trading.
If you have any additional savings that are not a part of your emergency fund, this cash could conceivably be used as part of your allocation towards options trading. In addition, I would make it a point to include or at least allocate any future income that you earn from your current job to grow your portfolio.
Budget out your monthly expenses and include a line item for the "trading fund. At least that's why my wife and I do each month.
Regardless of how you allocation the key here is to find something you can consistently put towards your future. If that means skipping a Starbuck's Latte each week then say goodbye to those delicious Pumpkin Spice Lattes!
Whether you are a completely new trader or an experienced trader, you'll still need to master the basics. The goal of this section is to help lay the groundwork for your education with some simple, yet important lessons surrounding options. Click here to view all 12 lessons? Back to that question everyone asks, " How much should I invest? First you don't need a million dollars or anything close to it to be successful. We've already debunked that myth in this popular podcast episode looking at two traders in a case study.
But that said to start with no money or very little money makes it extremely hard to get some consistency in positions. There is something to be said about watching your money closely, and I firmly believe that if you have a bigger chunk of money invested you are going to be more invested in learning how to trade options smarter. Although such a broad-based education in personal finance could take a lifetime to learn, a few key lessons that I have learned along the way and wanted to share are as follows when it comes to allocation of funds:.
Options trading is an inherently risky financial activity that should only be pursued by those people who have developed effective risk management and asset allocation strategies. However, if you are willing to obtain the education and perform the hard work necessary to make money at it, options trading can be a very rewarding and profitable.
Kirk founded Option Alpha in early and currently serves as the Head Trader. Kirk currently lives in Pennsylvania USA with his beautiful wife and two daughters. Let them know they will probably lose most of it, the worst thing you can do is get in too soon. Small gains will give the new trader the illusion you know what youre doing but ultimately you will lose more than you gain.
Jake , Yup at some point really money makes you trade different than paper money. Kirk Du Plessis 2 Comments January 22, Free Video Training Courses. Daily Options Trading Alerts.More...