Be Prepared To Be A Full-Time Options Trader

Being a full-time trader requires you to be prepared both mentally and financially. You must be able to withstand the bad times so you can prosper during the good times.

Your first step in trading is preparing financially. Without money, you are not going to do much trading.

How much money do you need in your portfolio before you go full-time?

The answer to that question is not cut and dry. It requires you to look at your situation and needs and make a judgment call.

First, you need to figure out how much money you need to live. Forget the fancy cars and high-end toys for now. What are the bills that need to be paid? What type of lifestyle can you live with right now? You may be used to a $100,000 lifestyle thanks to your 9-5 job, but could you live with less if you were your own boss?

"If you want to really quit your job sooner and start living off your trading, you should audit your spending behavior”.

Cutting your expenses is a great idea to help get you started. This will keep the bar low and manageable as you transition off a steady income. What you don’t want to do is be unrealistic with your cuts. It may be easy to say you won’t go out to eat or spend any money on entertainment, but we both know that is not true.

Deciding how much you need to live is only the first step. Now you need to look at your performance history. What are your annual returns, and are they consistent?

If you return 20% a year, and you need $50,000 to live on, you need a $250,000 portfolio. At a minimum.

Have you ever heard the saying, “Don’t confuse brains for a bull market”?

Don’t lean on your abilities and past returns 100% if the market has been favorable. If you’ve had three great years of returns, but the market has gone in your favor in those three years, you need to account for that. What happens when you become a full-time trader and the market atmosphere changes? Before, you were making money hand over fist, but now you can’t buy a win. Make sure you play it safe when it comes to your returns. Exceptional years need to be discounted and recognized as extraordinary.

You also need to account for starting the year with a loss, because you are now in a hole. You must return above your annual average to get back to the level on which you need to live.

That accounts for if you have a loss. What happens if you need to withdraw during the year to cover an expense?

Knowing your minimum is good, but you should aim for a level above your minimum portfolio size to make sure you always have enough cash on hand.
When talking about your finances, we can’t stop at your portfolio.

We also need to discuss your savings.

Unfortunately, in this business, nothing is guaranteed.

Nathan Michaud, a full-time trader, said it best, “Leaving your job means leaving your guaranteed income stream. You should save up enough money to cover your expenses for two years.”

Two years of expenses may seem like a lot, but with no guaranteed income, it should be your minimum.

With a large savings account, there will be less pressure on you to perform. Trying to trade for a living, beat the market, and make sure you make enough money to put food on the table is high-stress. Trading may be easy now, but you add in the extra stress of trying to feed your family, and it is a completely different game.