I started option trading 3 weeks ago, and it generated about 10% return for the 3-week duration, which is quite lucrative for the time period in my opinion. But, the real question is – can the return be consistent or sustainable month or month? If the answer is yes, then you are talking about 10% *12 = 120% return for one year. I do not know the answer. And, that is why I am documenting my journey on option trading to share how option trading feels and works for a person who understands financials at a good level and do it as a side hustle.
The options I have been trading is NVIDIA. The followings are my 3 basic principles or rules:
- I only trade options on the companies that I want to own the underlying stocks, meaning – they are fundamentally sounds companies and if I get assigned with its stocks, I will not have concerns for its returns in the long run.
- I keep the game simple – I only sell puts (long puts) or covered calls
- I do not chase top premiums, rather I defend my risks first
The NVIDIA stocks has experienced big highs and lows in the past 5 days. It stock price surged to $970 last Friday morning, the 8th and immediately followed by 8% down the same day, and today it closed at $857, the 11th. This type of fluctuation can be a good thing for option traders because it increases the stocks’ volatility index (VI). In general higher VI, higher option premium.
Even with that said, the reason why I picked NVIDIA as my option trading choice, it is not only because its VI is relatively high, it is because I think it is a fundamentally sound company with great financial strength (please refer to my post on NVIDIA stock valuation). So, even if I get assigned by selling puts, I will not worry about returns in a long run.
The following is what I have been tracking of NVIDIA stock price.
| 3/5/2024 | 3/6/2024 | 3/7/2024 | 3/8/2024 | 3/11/2024 | Comment | |
| Daily Price Change% | 1% | 1% | 3% | -8% | -1% | Close/Open stock price |
| DTD Price Change% | n/a | 3% | 4% | -6% | -2% | Next Open/Prior Close stock price |
| Daily Volatility % | 3% | 3% | 4% | 13% | 6% | High/Low stock price |
Trading option can be fun and sometimes give you the heart-pounding feeling. It is like riding a roller coaster – the thrill, excitement and sometimes nausea feeling when the markets go against your option positions. Is it all worth it? We will find out…
Disclaimer: I am not a financial advisor or lawyer. What I have published in this article is based on my own understanding of finance and economics. It is for my personal hobby and entertainment purpose only. Please do not take it as financial, investment, or trading advice. Please conduct your own research before making any financial, investment or trading decisions.