Day Trading

1) Get cash up front.
2) Will make money beyond the cash you get up front if the option is actually excercised (assuming the strike price of the option you sell is greater than the current price of the stock your selling.)
3) Aren't taking any big risks that you wouldn't be taking anyway by holding the stock.

Of course you risk making less money that you'd otherwise make if you simply held the stock and it goes well above the strike price. But most options expire worthless, and quite a few of the ones that don't probably still don't make enough to cover the contract price (ie your still better off).

How much you can make doing this depends on the stocks you invest in and the manner in which you do it. Not shockingly people are willing to pay more for options on a hot growth stock like Apple (a Sept 140 call contract trades for $420, slightly more than a 3% yield) than they are for a value stock like Walmart (a Sept 45 trades at $45, a 1% yield). Also the closer the strike price is to the stock's current price the more its worth but the more likely it is that the contract will be excercised (an Apple Sept 140 contract is worth $420, a 150 is worth $140, a 160 $45, etc). I generally sell contracts that are short term and fairly far out of the money (as far as I can go while still making a decent return).

Okay, that was a lot…

Buying calls or puts is obviously far riskier. My advice would be that you should only buy options rarely, if at all, and look for options that don't expire for at least a year (more time is relatively cheap when buying options–the first month is the most expensive, as is the first year, etc).

And to answer your originial question– unless you are VERY lucky (and have taken a huge amount of risk) I doubt you could make a living in the short term off of options. But you should be able to augment your returns by selling calls and over the long term that can help the 20k grow.

Good luck.

Here's how it works:

Before you can trade options, you have to apply for options trading.

Most applications are reviewed and approved within 5 business days.

After being approved, decide whether you want to write a covered call, or trade calls or puts.

Options Strategies

* Covered Calls
Sell a covered call to generate income on a stock position you already own. This strategy is designed for conservative investors who are neutral to moderately bullish on a stock currently owned and are willing to sell the stock at a pre-determined price in exchange for receiving a premium for selling the call option.
* Trading Calls & Puts
Buy calls and puts to speculate on the price of a stock. Investors can buy long call options when they feel the price of the underlying stock will increase, or buy long put options when they feel the price will decrease.

Back to your example. Please consider another theory. You didn't capture the 5 point "discrepancy". You might have been profitable because there was a big follow thru when the primary market opened and you caught some of that move. I have done this, and when it works, it works well, but sometimes there is no follow thru, or worse, there is a backlash, so being ready to exit promptly when the trade is not forming is crucial to success.

Learn before you burn yourself out. Most (and i really mean most) people lose money day trading. You need a discipline that is hard to master. You need to know how and when to take a loss as this is what saves you to trade again in search of the winners. Stop loss orders are very important. And you need to realize that you are trading against professionals who get better executions of orders, have better information and faster access to it. You are also trading against computer programs.

Options are for the most part a highly speculative venture unless you are writing covered calls to try and boost your return on your long positions.

read the educational stuff at bobbrinker.com

The wash sale rules apply to options trading if and only if the replacement position is "substantially identical" to the position closed for a loss.

<<<I traded stock options many times often within 30 days, each time taking a bigger loss; Say I BUYcall options for TM(toyota) sell within 30 days, rebuy within 30 days (different strike price different expiration date), each time taking a loss.. Can i take a capital gain loss or does the Wash Sale rule apply?>>>

You have to determine if the option purchased is "substantially identical" to the one sold. As of the last time I researched the issue, some years ago, the IRS had not issued any rulings to help clarify that term.

<<< I read somewhere the wash sale rule would apply for the 1st trade BUT that this DISALLOWED LOSS could be applied towards my COST BASIS of my next stock or stock option purchase of identical stock ?? >>>

When a wash sale occurs the loss is used to adjust the cost basis of the replacement position.

<<<Can i claim a capital claim loss on the 2nd or 3rd time i traded that particular stock option and took a loss or can i only use it to any future capital gain in future years??>>>

Every time you have a wash sale you adjust the cost basis of the replacement securities. You end up getting the benefit of the loss(es) as soon as you are out of "substantially identical" securities for a 31 day period. That can be in the same year or in a future year.

For more information on wash sales see the articles at

http://www.fairmark.com/capgain/wash/index.htm

including the pages on "Wash Sales and Options"

http://www.fairmark.com/capgain/wash/wsoption.htm

and "Substantially Identical Securities"

http://www.fairmark.com/capgain/wash/wsident.htm