I made my first profitable options trade on Oct. 24, 2023.
You couldn’t imagine the joy I felt for a $4.68 gain that took 67 days to make. And technically, it took longer than that.
I’ve studied options trading for the past two years. It’s a skill I’ve been determined to learn since I stumbled into stock market investing. It’s a way to use the stock market to multiply our money and put my family on the fast track to financial freedom.
I intend to make options trading a prominent part of my wealth-building strategy, alongside my day job, stock investing, real estate, column-writing and more.
It’s one of the riskier ways to use the stock market so I’ve proceeded with caution. But with the right technique and temperament, you can make a killing. And I believe I can develop both.
Some of you are well-acquainted with options, perhaps even profitable traders. Others have no idea what I’m talking about.
For those unaware, options trading is an alternative form of stock trading that offers the potential for a much larger — and much faster — return on invested capital compared to purchasing a stock directly.
As an example, on Nov. 13, I made $855.61 in profits from two options contracts I closed out. I held one contract for a single day. I owned the other for only three trading days.
The best traders have made substantially more each day for centuries.
Of course, it’ll take time for me to gain expertise. But I’m a patient man and a willing learner.
Before jumping in, I spent more than six months doing everything I could to educate myself about options and how to mitigate my risk. I downloaded explanatory literature, binged YouTube videos and listened to podcasts. Then I fired up Investopedia’s stock market simulator. It gives you $100,000 in dummy cash to test your investing theories in real time.
I ran a simulated version of trial and error for about a month before I began using real cash. And I quickly learned I wasn’t ready.
I lost $45 in my first options trade on July 28, 2023. It was a “put” on ticker symbol SPY. A put option gains value as the stock price decreases. My position showed a paltry profit — or “in the money” — for a bit. But I held too long, hoping for a greater gain before the end of the day. Then the position turned and never recovered. It tried to reach my required level just before market close, but failed. My first options contract expired worthless.
I could have quit. I don’t like losing money. And this was the opposite of my first taste of stocks, when I happily watched our money grow in real time.
It was a Friday. But I got right back into my second option the following Monday morning. On my second try, I bought a “call” option on the SPY, which means I anticipated the market would go up. And it did.
I watched my position increase 17.87%, a cool $10.84.
But then the market turned. My position flipped from green to red. I sold to stop the bleeding, only to watch the market spike in the closing minutes. It was too late. Total damage: $53.32.
With my losses from my first two trades hovering at $100, I smartened up. I joined a community group in August 2023 to help teach me how to trade. It was only $10 monthly. I figured it was better than going at it alone and hemorrhaging money.
But I still have a lot more to learn. I’m nowhere near comfortable trading consistently and certainly not pulling in a profit. I’m still easing my way in. But enough time has passed. I can only study so much. This is a game I must learn by playing.
One year later, I look back on my first profitable options trade with pride regardless of the paltry sum. It was a put option on Mullen Automotive, ticker symbol MULN. I had become familiar with the price movement on the electric vehicle maker’s stock since adding the company to my portfolio in October 2022. I earned $235.94 from swing trading Mullen throughout that year, essentially buying low and selling higher a short time later.
Once I realized the stock was trash and stuck in a never-ending spiral, it became obvious to me to try buying a put option.
I’m glad it worked. It was good practice. It gave me the confidence to keep going and never stop.
This mechanism, when operated properly, is a money multiplier. It’s not manual labor. It doesn’t require hard days and long nights. It won’t pull me away from loved ones on weekends and holidays. I don’t have to be anywhere or take instruction from anyone. I just have to pay attention and push a few buttons.
That’s a trade I like.
Darnell Mayberry is a sportswriter based in Chicago and is the author of “100 Things Thunder Fans Should Know & Do Before They Die.” He loves his daughter Parker, money and the Minnesota Vikings. You will find his column, Money Talks, each Saturday on cleveland.com and Sundays in The Plain Dealer.
A new column by Darnell Mayberry brings readers along his journey toward teaching his young daughter, Parker, about financial literacy.