How to Make Money with Options Trading (2026): Strategies, Capital, and Why Most Beginners Lose

Options trading is one of the few financial strategies where you can lose 100% of your investment in a matter of days — and where the marketing makes it sound like that almost never happens.

Here’s reality: the majority of options contracts expire worthless. A widely cited study from the Chicago Mercantile Exchange found that approximately 76.5% of options held to expiration expired out of the money. That doesn’t mean 76.5% of options traders lose money (many close positions before expiration), but it illustrates the fundamental dynamic: options are a decaying asset. Time destroys their value relentlessly. If you don’t understand that mechanic deeply before trading, you will lose money.

I’m not writing this to scare you away from options entirely. Options are a legitimate financial tool used by professional traders, hedge funds, and institutional investors daily. They can generate income, hedge risk, and provide leverage that isn’t available through regular stock trading.

But options trading requires a level of knowledge, discipline, and capital that puts it firmly in the “advanced” category. And the gap between what marketing promises and what beginners actually experience is wider in options than in almost any other financial product.

This guide covers what options actually are, how money is made (and lost), the capital requirements, the realistic income math, and — crucially — who should stay away entirely.

First — This Is Important…

Hey, my name is Mark.

After 15+ years testing income methods, options trading ranks near the bottom of my recommendations for beginners. The complexity, capital requirements, and loss probability make it one of the hardest paths to consistent income for anyone who isn’t already financially comfortable and willing to invest significant time in education.

The income model I recommend instead is local lead generation. I build simple websites that rank in Google and generate leads for local businesses. Each site pays $500–$1,200/month, recurring, with 92–97% margins. No capital at risk. No time decay eating your position. No Greeks to calculate.

Go here to see the exact system I use to do this

Now — here’s how options trading actually works, including everything the course sellers leave out.

What Options Are

An option is a contract that gives you the right — but not the obligation — to buy or sell a specific stock at a specific price before a specific date.

That’s it. Everything else in options trading builds on that single concept.

There are two types of options contracts:

Call options give you the right to buy a stock at a set price (the “strike price”) before the expiration date. You buy calls when you believe the stock price will rise.

Put options give you the right to sell a stock at a set price before the expiration date. You buy puts when you believe the stock price will fall.

Every options contract controls 100 shares of the underlying stock. So when you see an option priced at $3.00, the actual cost is $300 ($3.00 × 100 shares).

Key Terminology You Must Understand

Strike price: The price at which you have the right to buy (call) or sell (put) the stock.

Expiration date: The deadline. After this date, the option ceases to exist. Options typically expire on the third Friday of the expiration month, though weekly options now exist for many stocks.

Premium: The price you pay to buy an option (or receive if you sell one). This is your cost — and for buyers, it’s the maximum you can lose.

In the money (ITM): A call is in the money when the stock price is above the strike price. A put is in the money when the stock price is below the strike price. ITM options have intrinsic value.

Out of the money (OTM): A call is OTM when the stock price is below the strike. A put is OTM when the stock price is above the strike. OTM options can become worthless.

Time decay (Theta): Options lose value every day as they approach expiration. This is the most critical concept for beginners to understand. An option with 30 days to expiration loses value every single day even if the stock price doesn’t move. This decay accelerates dramatically in the final 2 weeks before expiration.

How Money Is Made in Options Trading

There are two fundamentally different approaches, and they carry very different risk profiles.

Buying Options (Directional Speculation)

You buy a call expecting the stock to rise, or buy a put expecting it to fall. If you’re right and the move is large enough, you profit. If you’re wrong — or right but the move isn’t large enough to overcome time decay — you lose part or all of your premium.

Example — Buying a call: Stock XYZ is at $100. You buy a call with a $105 strike price expiring in 30 days for $2.50 per share ($250 total). If XYZ rises to $115 before expiration, your call is worth at least $10 per share ($1,000). Your profit: $1,000 − $250 = $750. A 300% return.

If XYZ stays at $100 or drops, your call expires worthless. You lose the entire $250.

The catch with buying options: You need to be right about three things simultaneously — the direction of the move, the magnitude of the move, and the timing. Being right about direction alone isn’t enough. If the stock rises $3 but you paid $2.50 in premium, and time decay eroded more value, you might still lose money.

Selling Options (Premium Collection)

Instead of buying options, you sell them — collecting premium from buyers. Your profit comes from time decay working in your favour. As the option loses value over time, you keep the difference.

Example — Selling a covered call: You own 100 shares of stock XYZ at $100. You sell a call with a $110 strike price for $2.00 per share ($200). If XYZ stays below $110 by expiration, the option expires worthless and you keep the $200 premium. If it rises above $110, your shares get “called away” — you sell them at $110 and keep the $200 premium, but miss gains above $110.

Example — Selling a cash-secured put: You want to buy stock XYZ but at a lower price. You sell a put with a $95 strike price for $2.00 ($200). If XYZ stays above $95, you keep the $200. If it drops below $95, you’re obligated to buy 100 shares at $95 — but you wanted to buy the stock anyway, and your effective cost is $93 ($95 minus the $2 premium received).

Selling options has a higher probability of profit on any individual trade — because time decay benefits the seller, not the buyer. But the risk-reward is inverted: sellers collect small, frequent premiums while facing the risk of occasional large losses.

The Greeks: Why Options Are Complex

Options pricing depends on multiple variables simultaneously, measured by “the Greeks.” You don’t need to master these before your first trade, but you need to know they exist and what they mean.

Delta: How much the option’s price changes when the stock moves $1. A call with a delta of 0.50 gains approximately $0.50 when the stock rises $1.

Theta: How much the option loses per day from time decay. A theta of -0.05 means the option loses $5 per day (per contract) just from the passage of time. This is the silent killer for option buyers.

Vega: How much the option’s price changes when implied volatility shifts. High-volatility environments inflate option prices; low-volatility environments deflate them.

Gamma: The rate of change of delta. Becomes significant for short-dated options near the strike price.

If this sounds complex, it’s because it is. Options are a derivative — their value derives from multiple moving factors. Stocks move in one dimension (price). Options move in at least four dimensions simultaneously (price, time, volatility, interest rates). This complexity is precisely why most beginners lose money.

Capital Requirements

Buying Options

Technically, you can buy options with very small amounts. A single contract might cost $50–$500 depending on the stock and strike price. This low barrier to entry is exactly what makes options seductive — and dangerous.

The problem: small accounts can’t diversify. If you have $1,000 and buy two options contracts, one bad trade wipes out 50% of your capital. Professional options traders rarely risk more than 1–3% of their account on a single trade.

Account Size	Practical Viability for Buying Options
Under $2,000	Not viable. Can’t diversify. One bad trade is catastrophic.
$2,000–$10,000	Possible but high risk. Very limited position sizing.
$10,000–$25,000	Workable for small, defined-risk trades.
$25,000–$50,000	Reasonable starting capital for a disciplined approach.
$50,000+	Can trade multiple strategies with proper risk management.

Selling Options

Selling options requires significantly more capital because you must hold collateral. For covered calls, you need to own 100 shares of the underlying stock. For cash-secured puts, you need enough cash to buy 100 shares if assigned. For naked options (selling without collateral), margin requirements are substantial and the risk is theoretically unlimited.

Realistically, $25,000–$50,000 is the minimum for selling options as an income strategy.

Income Math: What Realistic Options Income Looks Like

Scenario: Selling Covered Calls as Income

You own 500 shares of a $100 stock ($50,000 position). You sell monthly covered calls at a strike price 5% above current price, collecting $1.50 per share.

Monthly premium: $1.50 × 500 = $750

Annual income (if consistently filled): ~$9,000

Yield on capital: ~18%

Sounds excellent — but here’s what this scenario doesn’t show. Some months the stock drops, and while you collected $750 in premium, your shares lost $5,000 in value. Some months the stock rockets past your strike price, and your shares get called away — you miss $3,000+ in gains above the strike. Some months volatility collapses and the premium available is only $0.50 instead of $1.50.

The 18% number is a best-case scenario. Realistic annual returns from covered call selling on a diversified portfolio are typically 8–15%, with significant variation.

Scenario: Selling Cash-Secured Puts for Income

You have $50,000 in cash. You sell puts on stocks you’d be willing to own at lower prices, collecting 1–2% monthly premium on the capital tied up.

Monthly income target: $500–$1,000

Annual income target: $6,000–$12,000

Yield on capital: 12–24%

Again, realistic expectations should be lower. Some months you’ll be assigned stock that drops further. Some months you’ll need to buy back positions at a loss. Consistent 15%+ annual returns from put selling is achievable for experienced traders but is not a beginner outcome.

Why Most Beginners Lose Money with Options

They buy options without understanding time decay

New traders buy cheap, out-of-the-money calls thinking “if the stock moves 10%, I’ll make a fortune.” What they don’t realise is that their option loses value every day from theta decay, and the stock needs to move not just in the right direction but far enough to overcome the premium paid plus the time decay that occurred while holding. Most of these trades expire worthless.

They treat options like lottery tickets

A $0.50 option that could be worth $10 “if the stock moves” seems like an amazing risk-reward. But the probability of that move is extremely low. Buying far out-of-the-money options consistently is the fastest way to drain an account to zero.

They don’t manage risk

Position sizing, stop-losses, and portfolio-level risk management are more important in options than in stock investing — because losses can be faster and more severe. Most beginners skip these fundamentals.

They underestimate complexity

Understanding a covered call is relatively straightforward. Understanding multi-leg strategies like iron condors, strangles, and butterflies requires significant study. Many beginners attempt complex strategies after watching a YouTube video, without understanding the risk profiles.

They ignore volatility

Implied volatility dramatically affects option prices. Buying options when volatility is high means paying inflated premiums. If volatility contracts (which often happens after earnings reports or major events), the option loses value even if the stock moves in the right direction. This catches beginners off guard constantly.

For more on why active trading fails for most people, see why most people fail at making money online and is day trading a scam.

Common Options Strategies (Simplified)

If you decide to proceed despite the risks, here are the primary strategies ranked from least to most complex.

Covered calls (conservative). Own stock, sell calls against it. Generates income but caps upside. Suitable for investors who already own stock and want additional income. Lowest risk option strategy.

Cash-secured puts (moderate). Sell puts on stocks you want to buy at a lower price. Collects premium while you wait. Risk: you’re obligated to buy stock if it drops — which you planned to do anyway.

Long calls or puts (speculative). Buying options directionally. Simple concept, difficult execution. Maximum loss limited to premium paid. Most beginners start here and most lose money here.

Vertical spreads (moderate-advanced). Buying one option and selling another at a different strike price. Limits both risk and reward. Requires understanding of spread mechanics and break-even calculations.

Iron condors (advanced). Selling both a call spread and a put spread simultaneously. Profits when the stock stays within a range. Requires understanding of probability, position management, and adjustment techniques.

Tax Implications

Options create complex tax situations. Short-term gains (positions held less than a year, which is most options trades) are taxed as ordinary income at your marginal rate — potentially 22–37% depending on your bracket. Losses can offset gains but are subject to wash sale rules if you re-enter similar positions within 30 days. Consult a tax professional if you trade options actively.

Pros and Cons

Pros: Can generate income from stocks you already own (covered calls). Leverage allows controlling more shares with less capital. Defined-risk strategies let you know your maximum loss before entering a trade. Profits possible in any market direction — up, down, or sideways. Professional traders use options effectively for income generation. Offers hedging capability to protect existing stock positions.

Cons: Majority of options bought expire worthless. Complexity far exceeds stock investing — multiple variables affect pricing. Time decay works against option buyers every single day. Requires significant education before trading with real money. Capital requirements for selling strategies are substantial ($25,000+). Tax treatment is unfavourable (short-term capital gains rates). Emotional discipline requirements are extreme. Can result in losses exceeding initial investment for certain strategies (naked selling).

Who This Is NOT For

Options trading is the wrong path if you have less than $10,000 in capital you can afford to lose entirely, have not studied options mechanics for at least 3–6 months, have never traded stocks and want to start directly with options, are looking for passive income (options require active management), are emotionally reactive to financial losses, or are attracted to options by marketing claims of “100%+ returns.”

Who Options CAN Work For

Options are potentially suitable for experienced stock investors who want to add income to existing positions, traders with $25,000+ in dedicated capital and a solid understanding of risk management, people willing to spend 3–6 months studying and paper trading before risking real money, and individuals who approach trading as a business — with rules, a plan, and emotional discipline.

For context on realistic income expectations across different strategies, see realistic online income expectations.

Frequently Asked Questions

Can you make a living from options trading? A small minority of experienced traders do. It requires substantial capital ($50,000+), deep knowledge, and years of experience. For most people, options income supplements rather than replaces employment income.

How much money do you need to start options trading? Technically, a few hundred dollars can buy a single contract. Practically, $10,000–$25,000 is the minimum for a meaningful, risk-managed approach. For selling strategies, $25,000–$50,000.

Are options gambling? Without a defined strategy, risk management, and statistical edge — yes. With education, discipline, and proper position sizing — it’s speculation with calculable risk. The distinction is entirely in the trader’s approach.

What’s the best strategy for beginners? Covered calls on stocks you already own. You’re generating income from an existing position with capped risk. It’s the lowest-complexity, lowest-risk entry point into options.

How long does it take to become profitable? 6–12 months of education and paper trading, followed by 12–24 months of small real-money trading. Many people never become consistently profitable.

Should I take an options trading course? Free resources are sufficient for learning fundamentals. Be extremely skeptical of paid courses ($500–$5,000+) that promise specific income levels or “guaranteed” strategies. Many course sellers earn more from teaching than from trading. See warrior trading review for an example of how education products are marketed in this space.

The Bottom Line

Options trading is a legitimate, powerful financial tool — in the right hands. For experienced traders with sufficient capital, education, and discipline, strategies like covered call writing and cash-secured puts can generate meaningful income supplemented by favourable probability dynamics.

For beginners, options are overwhelmingly likely to lose money. The complexity, time decay mechanics, and emotional demands create an environment where the vast majority underperform — often significantly.

If you’re new to making money online or building income, there are paths with far better risk-reward ratios that don’t require $25,000+ in capital or years of education to become profitable. Building a digital asset that generates revenue is faster, cheaper to start, and doesn’t carry the risk of watching your capital evaporate during a bad week.

That’s the approach I took, and it’s what funds everything else. If you want to see how it works — here’s the model I use to build simple websites that generate $500–$1,200/month each in recurring revenue, with no capital at risk in the financial markets.