Tslynk67
Well-Known Member
I'm going to ignore most of what you wrote and go on my rant about "paper trading".
It's very easy to convince yourself that you will make money, because (being human) you think to yourself "I'd have bought at the bottom here", or "that's obviously a blip, I'll hold through it", or things like that. But once real money is on the line, it's much harder to make the correct decisions, and what is more, sometimes the trade you do want to make simply doesn't go through. Or you place a market order and discover it gets priced a lot differently than you expected. Or someone on the other side of the option decides to exercise it at a time that makes no sense to you, but it comes out to be exactly the wrong time. I can't even enumerate the ways that you can mislead yourself with paper trading.
So, take your $200k scenario. I suggest you use $50k to implement your strategy, and at $4k/month you can live off the other $150k for a few years (invested in something relatively solid, like ARKK). Once you've consistently turned a profit on the $50k, then you can top it up with whatever is left in your other investment.
"The market can remain irrational longer than you can remain solvent" -- John Maynard Keynes.
Nightmare scenario: it's March 2012. Back on Feb 19, you sold a $140 put, and made some money on it (it's hard to get historical options pricing, so I can't use real numbers here for the actual pricing of the option, but the stock prices you can get on Yahoo Finance by looking at the YTD chart; these numbers are post-split adjusted); on Feb 19 TSLA was $159.98. On March 11, the counterparty exercises your put (remember, you don't have any say in this) and you just bought TSLA for $140 at a time when it is trading at $86.04. What do you do? All your capital is tied up in TSLA stock that's worth about 70% of the money you used to have. It doesn't get back up to the initial price until mid-May, but by then you've eaten $8k of it for living expenses. And remember, this is Tesla doing well at a time everything else was crashing... what if everything else is fine but Tesla tanks all by itself?
Notes:
(1) it doesn't matter how long the period of the Put was, since it's the buyer who decides to execute it.
(2) The broker had withheld enough margin to buy the stock at $140. But now it's only worth $86, you've borrowed against margin to buy it, so now you get an instant margin call.
Of course I've chosen the worst scenario in recent memory. But people who paper trade usually only look at the best scenario. "Think how much I would have made if I sold the Put in March!"
Not a professional, not advice, but... not optimistic.
Indeed, paper-trading is good to learn the mechanisms, but you need skin in the game to experience the emotions and stress of real options trading as your decisions will be coloured by that.
(hint: you'll be stressed)