Doubling Returns Every Month in Options Trading

So here goes. My best friend from college and I have had a very similar career path. We both interned at the same financial institution, both eventually landed in consulting at Tier 2 firms, and both had expressed interest to pursue the MBA route to re-brand ourselves and move from 'tech consulting' to either strategy consulting or banking.

We have sort of pushed each other every step of the way however for the past year or so, he's been focusing entirely on Options Trading. He's stopped caring as much about work or pushing himself out of his comfort zone (example: taking an easy long-term federal project so he has more free time, is out at 5 everyday, etc.). As his friend, I've advised him strongly against spending his 20's just relaxing on a federal client especially when I have enough connections at his firm to help him get onto a commercial project or potentially even bring him into my current firm.

He insists that I'm too focused on the MBA route and missing the big picture. While I've been taking financial modelling, finance, and strategy classes to help get myself onto a strategy/finance project at Deloitte, he's been reading about options trading and buying options, mainly following the QQQ fund and following price movements to guide his purchase decisions.

Recently, he's expressed his goal to put in 5K, and double it every month for a year. Personally, I think this is ridiculous and he could spend this time prepping for the GMAT. Please tell me if I'm completely off base here. From what little I understand about trading, its exponentially difficult to 'double your money every month for a year'.

We had the same exact starting point and while I've not quite managed to get to where I want to be yet, I've worked with almost a dozen fortune 500 companies in the same span of time he's been on the same federal client. What hurts me is that he could have too, if he wasn't so comfortable. Is he wasting his time? Or will he double that 5k every month in options to the tune of 4 million a year from now? (if he can, I'd be happy for him). I'm just concerned that if it doesn't materialize, he'd have lost time/money.

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Comments (17)

May 18, 2017 - 10:00am

So I don't know too much about this space, but he did show me one trade in which he 'flipped' 5K to '8K'. The problem I have is, while short of calling this luck, I just don't see this as a sustainable approach to wealth creation.

Sayonara

May 18, 2017 - 10:01am

For real consistently doubling every month is impossible and barring truly exceptional opportunities (say like 1987, breaking the pound, or 2008) you are not going to be able to double your portfolio while taking a reasonable level of risk. With options, it is possible for an investment to double, but due to the risk of losing most if not all of its value, it would be completely insane to put all of your money in it.

May 18, 2017 - 10:09am

If those particular economic situations did exist as you mentioned, I would imagine that actual traders and funds on Wall Street would be taking advantage of those opportunities. I have a difficult time believing a novice trader can actually perform at that level without having access to all the real-time data and information that WS Traders actually have access to.

Its not that I'm against risk taking, but I've always advocated a conservative approach to career decisions and taking only calculated risks with high upside. I've also always believed that 20's should be used to position myself for success in my early 30s. I don't really know how to communicate this to him without him thinking I think his lackadaisical approach to his career because he thinks he can build a fortune is options trading is a poor strategy and a waste of time.

Sayonara

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May 18, 2017 - 10:38am

That said, you don't need 100% a month returns to be successful trading options and that with a more conservative goal (like shooting for 12% a year with proper risk management can prove a worthy endeavor) both for the returns made and the skills gained while doing it. The best way to make big money trading options though would probably be to get hired as a trader at a bank or prop firm (the kind of ones I am talking about are the ones that will pay you a salary or a draw, not the chop shops that require capital commitment from the "traders"). At a good bank in options or at a good prop firm that specializes in market making options, you can make more than you would trading options at home, with lower transaction costs, better information, a better edge, and better stability with a base salary. So far as books, Hull's Options, Futures, and Other Derititaves is great. After that, Natenburg's Option Volatility and Pricing is great. Lastly, I would read Dynamic Hedging by Taleb, although Hull is probably the good beginners one.

May 18, 2017 - 11:35am

This is definitely true, but can you please elaborate on what potential lessons do you envision for this particular scenario? Hard as they might be.

Sayonara

May 18, 2017 - 1:14pm

So you believe his approach is going to work?
Guess I'm on the wrong path then

Sayonara

May 18, 2017 - 3:23pm

this is just what I was about to say, hilariously delusional.

Array

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May 19, 2017 - 2:42am
You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.
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