Saturday, April 9th, 2016

Could I become at least a millionaire by age 23 by trading options using a “Straddle” strategy every time?

I have 17 now, will be 18 in two months, I read about all the different investment vehicles exist to make money. Because I live in the United Kingdom, could trading CFDs (contracts for difference), but not float my boat now. I read in options trading, buying books, reading blogs and articles on the subject, and I have been exploring the many different strategies you can use to invest and straddles catch my eye. Straddles are strategies where you buy a long call and Long PUT with an exercise price equal to that before the option has any value, the share price should go way up or down. What I would like to know is if I started with, say, 500 pounds and trade populations using straddles every time, but once I made enough money, branched and diversified my investment just to avoid the loss of all, I could in five years, from the age of 18-23 years of age, or alternatively, for 27 years become a millionaire, and this is possible and you’ve ever done in this short time?

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5 Responses to “Could I become at least a millionaire by age 23 by trading options using a “Straddle” strategy every time?”
  1. Jaminio says:

    Straddles and their out of the money cousins Strangles, only work with high volatility underlyings as you use these strategies when you believe that the underlying will move by a large amount, but you don’t know which way (or you would just take the directional trade). First off, to make any money you need for the underlying to move by more than the premium before you can break even.
    The problem with high volatility stocks is that this volatility is price into the option (Vega) and the higher the volatility, the more the option costs.

    To be put into perspective, your £500 would buy you two options. Because of high cost of bank balance sheets and high Vega on stocks at the moment the average in the money option is running at around 15% premium. So for you to make any money overall, one leg of the option needs to move by 30% before you even break even.

    This is a type of hedging strategy so will never make large amounts of money that you are thinking of, what you should do is study one or two areas of the AIM market and then trade CFD’s.

    Being very honest, anyone who becomes a millionaire is very good at what they do. So the chances of you becoming a millionaire in the next 10 years through trading is very, very slim unless you are good at it.

    Good luck and happy hunting

  2. Judy says:

    Not impossible, but unlikely unless you are VERY good, and VERY lucky.

  3. zman492 says:

    < <>>

    It is possible but very unlikely. I think the odds would be similar to your odds of becoming a millionaire by investing your £500 in lottery tickets.

    Let me give you a quote from Natenberg’s book “Option Volatility & Pricing” (page 187).

    “While there is no substitute for experience, most traders quickly learn an important rule: straddles and strangles are the riskiest of all spreads. This is true whether one buys or sells these strategies. New traders sometimes assume the purchase of straddles and strangles is not especially risky because such strategies have limited risk. But it can be just as painful to lose money day after day when one buys a straddle or strangle and the market fails to move, as it is to lose the same amount of money all at once when one sells a straddle and the market makes a violent move. Of course, a trader who is right about volatility can reap large rewards from straddles and strangles. But an experienced trader know that such strategies offer the least margin for error, and he will usually prefer other strategies with more desirable risk characteristics.”

    In that quote the phrase “straddles and strangles are the riskiest of all spreads” is emphasized.

    —–

    I disagree with another answer you received about the stock having to make a large move to make money of a straddle or strangle. That is only true if you hold the position until expiration. If you buy a straddle with a low implied volatility, and enough time until expiration, you can make a substantial profit off an increase in implied volatility even if the underlying stock price changes very little.

    Your chances of making money also depend upon your ability to manage the straddle actively. The only person I have seen claim continuing success with long straddles ratios the number of puts and calls to make the position delta neutral when he opens the position, then he uses gamma scalping to adjust the position and keep it delta neutral.

    < <>>

    I have never heard of anyone having anywhere near that amount of success buying straddles as an ongoing strategy.

    —–

    I should add that in 30 plus years of options trading I have only bought a straddle a couple of time, so I do not have a lot of experience trading long straddles. I have, however, sold quite a few straddles usually making a small profit. One example was GM in 2006. I sold a straddle with the stock at $20.01 per share and closed it with the stock over $30.00 per share, but I had collected enough in premiums to realize a small profit. For more info see

    http://messages.yahoo.com/Business_%26_Finance/Investments/threadview?m=tm&bn=4686677%23optiontradestraderecommendations&tid=2732&mid=2732&tof=79&frt=1

  4. exactduke says:

    Do you know a lot of 18 yr olds that have done this??
    Your odds are much better buying 500 lottery tickets. But you and your 500, may well have to find this out for yourself, via the ‘school of hard knocks’.

    Reading & studying, are one thing – execution & accomplishing this is another. Especially with such a small sum – 500. Transaction costs & economies of scale, by themselves are likely to doom any profits.

  5. MVD34 says:

    Virtually impossible and no.

    What special skills or abilities do you bring to the table (since at your age it obviously cannot be experience)?

    In the first place, trading in any area (stocks, ETF, futures, options, etc) is extremely difficult to sustain in the long run without a decent purse to start with. Let’s call it £100,000 at a minimum. The more you trade above a couple of times a month and the longer you do it, the more the minimum will prove true. This is so because of the cost disadvantage of small trading combined with the use of leverage and the difficulty in limiting trading to the most profitable trades of the day, month, year.

    If trading your way from £500 to £1mm were that easy, everyone would be doing it.

    As a point of reference, “the above average” money managers are generally hitting just about double digit average returns after a decade of managing real money ($25mm +)…lets call it 11% although that is a tad high at the moment. The good managers are in the low teens (14%+) and the great managers are in the high teens (18%). Only a couple dozen can keep a batting average in the 20% over a decade or more and only a handful can continue that performance over multiple decades (here’s a hint: most of those guys are worth billions now and they built companies too).

    None (zero, nada) did it by picking trade stategies out of a book and executing them without variation. To a man (and they are mostly men) they brought something new, different or special to the table and ran with it.

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