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We trade options to grow our wealth – plain and simple. To do that, we need to maximize our options trading win rate and lean into the tremendous leverage they provide.
What is a good win rate? Well, it’s winning more than you lose. Even if you win 51% and lose 49%, you can make money. But you want to do better than that, right? Top options traders can have win rates around 80%. A more attainable win rate is in the 60 – 70% range.
How to maximize your options trading win rate
So how do you achieve a strong win rate?
Take advantage of options’ flexibility
With options, you can choose your strike price and the time to expiration. That flexibility is a huge advantage. So is your ability to end the trade anytime you wish, whether it is working or not.
If your trade is working, you sell when you have profits – you do NOT wait for it to keep going up. Sell, and then if the conditions continue to look good, put on a new trade.
If your trade isn’t working, you don’t need to get stuck in a zero sum game. You might lose some money, but you won’t lose it all if you jettison a trade.
Consider probabilities of winning
You can also take what I call the “smarter trade” – a trade that might have less leverage but better odds for winning. Let’s put it in percentage terms. If an option has a 65% probability of going in the money, would you buy it versus one that has a 55% chance? The obvious answer is the one with 65% probability of winning.
But if the trade with a 55% probability could deliver a bigger win, you might want to go with that one.
Now, there are times you might want to take a larger risk and go with the 25% probability trade – but that is a rarity. Taking that much risk means you have a 75% chance of losing, and trying to make up for that big of a loss can be insurmountable.
The good news is that you can almost always find a high-probability combination of time and price. When you find one, make the trade. I am always looking for the best trade set up that fits a particular profile. Whether I am trading Meta, Microsoft, 3M, or Chevron, I can usually find the best-fit trade that gives me the best odds of a positive outcome.
Don’t forget to manage your risk
You can also take what I call “dumb risk”. (The name is not a reflection of the trader’s intellect!) If your options trade has a bigger move than you anticipate, you can book some nice gains and raise the stakes on the next go around (if you want to). Compounding is the great wealth creator, but you cannot compound positively if you are taking unnecessary risks.
As I often say, you need to use good risk management to win at options trading. If you don’t, you will find yourself behind, losing more trades than you win. Imagine you’re making winning trades only 10-30% of the time. What will happen? You’ll soon run out of capital and your options trading days will be over.
Nobody has an endless stream of capital, so you have to be diligent about using your dollars to grow your account. That may happen quickly or slowly, but as long as the pile gets larger over time, keep doing what you’re doing and you will maximize your options trading win rate.
Related: 5 Things Driving the Bullish Stock Market Trend Right Now