Starting an Options Trading Business

What do I need to start a successful business trading commodity options?

Summary

What do you need for a successful trading business?
  • Business Knowledge
  • Data
  • Ability to Analyse and Plan
  • Ability to Execute
Let us take a closer look at these.

Business Knowledge

Maybe you are completely new to trading, you have some funds and are looking at a way to grow those funds. Or maybe you are an experienced trader that came to the frustrating conclusion that you are up, then you're down, then you're up, then you're down, you are just not "getting there". Regardless, here is a business opportunity to start you on the road to consistently grow your funds. BUT, you have to understand how the business works!

You cannot hope to make a success out of any business opportunity without understanding the nature of the business! You have to have a deep understanding of the instruments your are trading with. You have to understand what drives prices, why would people be willing to buy your product, what price will they be willing to pay. What factors will influence how much your customers will pay for your product? What factors will drive their expectations down, what will make people happy to pay more for what you have on offer? You have to understand your product. You have to understand your market. You have to understand the business you are in - what is DRIVING it?

Take a second-hand car salesman. How can he hope to have any success without understanding what are driving the used-car market? If he does not understand how the used-car market works, what is a good price to pay for a car, how much will a cusotmer be willing to pay for the car, what drives demand for used cars, etc... - how can he hope to make a success out of his business without any understanding of the product he is trading with?
...

If you want to stand any chance of making a success out of trading, you need to understand the product you are trading in, and the market that is driving supply and demand of that product.

Data

Let's go back to our second-hand car salesman. He needs to buy cars and sell them at higher prices. How will he know what price to pay for a car without any data on what price the car is likely to fetch in the market? How does he run his business without data?

In our case, commodities price data are available in abundance - there are many different (free) sources of price data. HOWEVER, we are not trading in the Commodites themselves, we are trading in Insurance Policies on the commodities markets! We need data for INSURANCE POLICIES - OPTIONS. We need to know what prices the options fetched today, and what prices they are likely to fetch tomorrow. We need enough data to allow us to calculate a fair price for an option tomorrow, given the underlying market conditions. Not only a specific option, all options out there..- we need to be able to make informed business decisions! We also need the understanding of how the market conditions we are observing are likely to influence the price people will be willing to pay for insurance policies going forward, and we need data to do these calculations.

Now here's a challenge. Go out there and see how easy it is to find options price data. Not just options price data, RELIABLE options price data. I very recently was very surprised to find that even a very reliable commodities price data source, where you pay a steep monthly fee for premium membership, that their options price data are wholly inaccurate - using their price data you over- or under-estimate tomorrow's prices by 20% or more!!

You need RELIABLE data!! Your Broker will probably have reliable data for you (I know the Broker I use's data is on the dot) - however that is too late, you need the data today, or over the weekend, to plan your business for next week or for tomorrow.

Analyse and Plan

OK, you've got data and you have the understanding. You now need to plan your business transactions. You need to look at a market and decide whether you are going to enter a position in that market. What strategy will you employ? At what price would you like to sell insurance? How high is the risk, is the risk to your liking? What can you do to limit the risk?

You need to be able to analyse the market. You need to look at the information available to you and create a trading plan. You need to write down that plan. You need to be able to adapt that plan - if tomorrow, when you want to enter your plan, the market has made a move - do you still enter according your plan, or do you adapt your plan?

The market is a dynamic place, things are changing all the time - you need to adapt to change, you need to do that on the fly - it might be a simple thing as you were willing to sell an insurance policy at this price, but because the market opened at a different price level from where it closed yesterday, investors are no longer willing to pay your price - to you adapt your price or do you cancel your trading plan? That is a decision you need to make - right at that instant. Do you have the necessary analysis tools to allow you to evaluate and make a decision?

Execute

You need a Broker through whom to direct your trades to the market and you need to fund your business.

Broker

There is a few requirements for your Broker. You need someone that is reliable - you don't want a fly-by-night, someone who is there today and disappears tomorrow. You want someone who is trustworthy - you do not want a Broker who trades for his own account and who might be buying from or selling to you from out of his personal account. You want someone that is allowing you total freedom to trade options - both buy and sell options, on all the commodities (you certainly do not want to limit yourself in the available commodities you can trade).

You need to know your funds are secure. I talk to traders and I ask them about their Broker. And they tell me "..no its really easy, I can simply topup my account or withdraw money from my credit card.." - and I think like "..what? If I want to transfer funds I need to get tax clearance. And if I withdraw funds my bank contacts me and I need to fill out forms for the South Arican Reserve Bank.. And YOU.., just deal with this under the table..? How does your Broker VERIFY that the person trying to withdraw funds is actually YOU? Do you think I am going to invest my hard-earned funds just with any Broker?"

I do a simple google search and seven out of the first 10 hits tells me "don't use this Broker" - all the red flags are raised - yet that is the Broker you are using...? Guys (and Gals) - this is a serious business - get yourself a reliable Broker - one where your funds are secure, we're not playing a trading game here.

We will recommend you a Broker on request.

Funds

How much money do I need to invest if I want to make use of this business opportunity?

You can start this business with as little as $5000 (five thousand US Dollar). There are Brokers that will accept an opening balance of $5,000 and allow you to trade options. BUT - in my personal opinion, $5,000 is taking chances.
  • You are severely limiting yourself in the types of Commodities you are able to trade
  • You are severy limiting yourself in the position size you are able to setup, and
  • You are severy limiting the risk aversion techniques you may employ to get out of trouble, if you need to
It is certainly possible, but you will have to restrict yourself to only certain commodities, only certain low risk strategies and you will have to carefully and patiently build your account. Thus, althoug possible, it is very difficult to start with such low funding and build your business out to a success. Personal opinion, you are taking chances!

$10,000: That is the minimum I would recommend anyone to start with. The Broker we will refer you to will not allow you to open an account to trade in the Commodities and specifically in Commodity Options without opening an account with at least $10,000. I did start with $10,000. I would not recommend anyone to start with only $10,000; it is very difficult to start under-funded and make a success out of the business. But it can be done. That said, I do know guys that have started with less than $10k, not $5k though, that have the self-discipline and are making it

$25,000: That is the minimum I would recommend. 25k gives you a good safety margin. It allows you to trade any commodity (well, bar one or two) you like. It allows you to manage your positions, add onto your positions if required or take evasive action. To me, that is a comfortable starting point.

Options Explorer

What does OptionsExplorer do?
OptionsExplorer solves the first three problems in this list.
  • We give you the training. We make certain you have all the knowledge on how the options trading business works, that you understand what drives prices and are able to judge for yourself what options prices will do based on what you are seeing the market is doing
  • You have a reliable data source - you will donwload data at the close of the business day and import it into the software. You have all the data you need to plan you business transactions, you have it offline, after hours, over weekends, whenever it suits you to do your analysis. And you will find it is on the cent accurate with the quote your Broker will give you
  • We give you all the tools you need to analyse the market, analyse option trading strategies. We give you dozens of options trading strategies, for different market conditions, we even search a market for the best combination of options. The software will recommend strategies for your consideration. You have all the tools to plan your positions, analyse the market, there are a huge number of different analyses to run to see what the market has been doing, where the big brokerage houses (the "institutional or professional traders") have positioned themselves - you can decide to follow suit, or play it safe. You are able to analyse and adapt on-the-fly. In other words, we giving you ALL of the analysis tools you can think of (and many more you have not thought about yet)

Conclusion

This is not a fly-by-night business opportunity. This is not a game either. You don't invest $500 or $1000 with dreams of becoming a millionare overnight. This is a serious business. It requires serious funding. It requires that you educate and train yourself on everything that the business entails. It requires you to acquire the necessary skills and the necessary tools to make a success out of this business.

If you do, you stand a real chance to build a successful trading business, to create a means to grow your funds.

Can I do this without Options Explorer?

 Of course you can! How do you think Alan Parry started? Go to the Trading Educators website. This is what Joe Ross says about Alan:
"..Alan has truly become one of the greatest options traders in the world today.."

Alan did it without the benefit of an OptionsExplorer. It took him years. And many many mistakes. But he persevered .. and came out on top. You can go that route. Or you can take a shortcut and gain everything that took Alan years to discover by going the OptionsExplorer route.