Mastering Prop Firms with Options Trading Challenges: Your Complete Guide

Navigating Prop Firms with Options Trading Challenges: A Step-by-Step Guide

If you’ve been scanning the trading landscape for an edge, you’ve likely encountered proprietary trading firms (prop firms) with options trading challenges. As someone who has participated in these programs, coached new traders, and developed options systems for both discretionary and rules-based methods, I can attest that the opportunity is real, but so are the demands that come with it. This comprehensive guide breaks down how these challenges work, how to prepare, and where to find firms that actively support options traders.

Let’s embark on your trading journey with a clear plan, practical examples, and the actionable details I wish I had on day one.

Introduction to Proprietary Trading Firms

What is a Prop Firm?

A proprietary trading firm (prop firm) utilizes its own capital to trade markets for profit. Traders operate with the firm’s capital under specified risk parameters, and compensation typically comes from profit splits. Some firms focus on institutional market-making and arbitrage, while others onboard and fund remote discretionary traders. For more detailed insights, you can explore the definitions and structures of prop firms from the Securities and Exchange Commission (SEC).

Prop firms are essential in the trading ecosystem as they provide traders access to capital, professional tools, and a structured risk framework. In my experience, this structure significantly benefits traders who are skilled yet constrained by capital.

Overview of Options Trading

Options are derivative contracts granting the right (but not the obligation) to buy or sell an underlying asset at a set price before a specified date. They introduce a unique layer to trading, as you are not only forecasting direction but also volatility, time decay, and skew.

Unlike stocks or futures, options expose you to the Greeks delta, gamma, theta, vega, and rho, which measure sensitivities to price, time, and volatility. This added complexity makes options especially attractive in a prop context: you can engineer defined risk, structure asymmetric payoffs, and tailor exposure precisely to your edge. For an in-depth understanding of options, consult the Options Clearing Corporation (OCC).

Why Choose Options Trading at Prop Firms?

Benefits of Trading Options with Prop Firms

• Access to Capital and Scale: A well-constructed options strategy often doesn’t require massive buying power, but portfolio margin and firm-level risk offsets can allow you to scale winners responsibly.

• Professional Tools: Prop firms offer advanced analytics that go beyond retail platforms—volatility surfaces, scenario testing, and Greek monitoring. The first time I had live Greek aggregation across my portfolio, my decision-making improved dramatically.

• Mentorship and Feedback: Many firms pair you with senior traders or risk managers, providing immediate feedback on position sizing, event risk, and hedging tactics.

• Risk Discipline: Firm risk teams enforce rules that prevent large losses. Position limits, loss limits, and event policies compel you to build structured trading processes.

Understanding the Risks

While options can magnify your skill, they can also amplify mistakes. Common risks include:

• Volatility Crush: Buying premium into earnings can lead to a collapse in implied volatility, erasing gains even if you correctly forecast direction.

• Gamma Traps: Being short gamma in fast-moving markets can lead to outsized losses from small price movements.

• Liquidity and Slippage: Wide spreads in specific options can distort your profit and loss.

• Assignment and Exercise: Mismanaging early assignment risk, particularly in American-style options around ex-dividend dates, can be costly.

Key risk management strategies include:

• Defined-Risk Structures: Utilize spreads, butterflies, or iron condors instead of naked short options.

• Event Protocols: Flatten or reduce short premium positions before known catalysts like earnings, FOMC announcements, or CPI data, unless a specific, thoroughly tested play exists.

• Greeks Limits: Establish daily caps on delta, vega, and theta exposure (e.g., +/- 2,000 delta, +/- 20,000 vega, and limiting theta to no more than 1% of equity per day).

• Hard and Soft Stops: Employ a mix of price-based, volatility-based, and time-based exits (e.g., closing positions at 21 days to expiration if the thesis stalls).

Top Proprietary Firms Offering Options Trading Challenges

While not all prop firms publicize their challenges, they generally fall into two categories:

• Institutional Market-Making Firms: These firms hire and train salaried traders through competitive assessments rather than requiring a pay-to-try challenge.

• Hybrid/Remote Proprietary Groups: These firms assess, train, and fund discretionary traders, often requiring fees or capital contributions.

Policies change regularly, so it’s crucial to verify current details directly on each firm’s website. You can also review our list of the 5 best options trading prop firms to get started.

Firm 1: SMB Capital

SMB Capital is a New York-based prop firm prominent in equities and options training. Their educational content, traditionally offered through programs like the Options Tribe, focuses on income trades, risk management, and a structured approach.

• What Stands Out: Their strong educational framework prioritizes collaboration and real-world trade reviews, allowing traders to progress from basic strategies to more complex structures under mentorship.

• Challenge/Evaluation: Expect a structured process involving training and rules-based paper trading, coupled with oversight before risking significant capital. Funding terms and paths fluctuate based on performance and desk needs.

Firm 2: Maverick Trading

Maverick Trading is a well-established firm that specializes in onboarding remote traders with a focus on options. They emphasize rule-based strategies and robust risk management.

• What Stands Out: A defined curriculum with clear trade plans (vertical spreads, condors, calendars). Traders usually start with smaller defined-risk positions and increase size upon demonstrating success.

• Challenge/Evaluation: Similar to SMB, this includes educational components, paper trading, risk reviews, and performance milestones. Be mindful of potential fees or capital commitments, thorough attention to the fine print is recommended.

Firm 3: T3 Trading Group

T3 Trading Group is a registered broker-dealer supporting both equities and options traders. They have more of a professional approach, complete with licensing requirements (e.g., Series 57 in the U.S.) for specific roles.

• What Stands Out: Access to professional platforms, direct market access, and a disciplined, compliant firm environment geared towards serious traders.

• Challenge/Evaluation: Not a public challenge; instead, think interviews, training, and live assessments under risk limits. Some paths may require capital contributions.

Firm 4: Susquehanna International Group (SIG)

SIG is a leading options market-making firm. They do not offer challenges; instead, they hire and train traders through a rigorous recruitment process.

• What Stands Out: Renowned for world-class training in options theory and risk management. If you’re seeking an in-depth understanding of options at a mathematical level, SIG sets the standard.

• Challenge/Evaluation: Involves technical assessments, probability/game theory exercises, and interviews. Traders are salaried with performance-based compensation, a path more aligned with institutional trading.

Firm 5: Akuna Capital

Akuna Capital is another prominent options market-making firm that emphasizes technology and quantitative skills.

• What Stands Out: Combines speed, automation, and research, ideal for those who want to merge coding with options trading.

• Challenge/Evaluation: Requires recruitment assessments, coding challenges, and trading simulations, resembling SIG's model and necessitating institutional-style application rather than a retail challenge.

Other noteworthy options firms include Optiver, IMC Trading, DRW, and Jane Street, each with its recruitment processes. If your goal is paid training and a salaried position, these firms should definitely be on your radar. For those considering related markets, check our buyer's guide to options and futures trading.

Understanding the Evaluation Process for Options Traders

Typical Evaluation Criteria

While specifics can vary by firm, you’ll usually be assessed on:

• P&L Relative to Drawdown: Common targets typically range from 5–10% return with a maximum drawdown of 4–6% over a specified period.

• Consistency: Firms value a lower variance in results and adherence to your trading plan. Some reward fewer large down days with recognition for “consistency days.”

• Risk Metrics: Position sizing discipline and Greeks management are key. Expect daily limits on delta and vega exposure.

• Process: Quality of your trade journal, pre-market preparation, and post-trade analysis are heavily weighed. Firms often appreciate a strong processing component, even when P&L remains flat.

• Market Fit: The ability of your strategy to perform adequately across various market regimes (e.g., trending, choppy, high volatility, low volatility) is critical.
  Learn more about what is a prop firm challenge and how to succeed.

What to Expect During the Challenge

• Simulations and Paper Trading: Most candidates begin with a simulated environment where they implement their playbook over a set period (typically 20-60 trading days).

• Rules and Scoring: Candidates may receive a detailed scorecard that includes a profit target, drawdown cap, minimum active trading days, and maximum position risks, often integrated into automated tracking systems.

• Live Transition: Successful candidates transition from simulation trading to small live accounts under tighter limits. If their strategies succeed, capital allocation increases.

• Reviews: Many firms conduct weekly or bi-weekly meetings with risk managers or mentors, where participants are encouraged to present journals and performance analytics.

An illustrative evaluation model might look like this:

• Profit Target: 7% return on starting balance.

• Max Drawdown: 5% peak-to-trough (with hard stops at 6%).

• Consistency: Minimum of 70% of trading days within the defined risk parameters.

• Risk Caps: Net delta within +/- 1,500; net vega capped at +/- 15,000; no single-name short premium exposure exceeding 0.5% of equity per leg.

• Timeframe: 30-45 trading days for the evaluation period.

Preparing for a Prop Firm Options Trading Evaluation

Essential Skills to Develop

• Options Mechanics: Familiarize yourself with concepts like assignment, pin risk, ex-dividend dynamics, and settlement regularities (AM/PM-settled indices).

• Greeks Fluency: Understand how delta, gamma, theta, and vega evolve with price, time, and volatility, and how convexity creates complications near expiration.

• Volatility Intuition: Develop an understanding of term structure shifts, skew, and the differences between statistical (realized) and implied volatility. The CBOE has resources that outline these concepts: CBOE Educational Resources.

• Execution Skills: Learn how to effectively manage spreads, partial fills, and slippage for optimal entry and exit points.

• Data Discipline: Maintain a practice of journaling, tagging trades by setup, and calculating expectancy, which can be improved by analyzing trading patterns over different market conditions.
  For beginners, understanding different styles is crucial; our guide on prop firms for beginners: trading styles explained can be very helpful.

Recommended Strategies for Success

Tailor strategies to align with the evaluation’s risk rules and your individual skill set. Common strategies include:

• Defined-Risk Credit Spreads: Execute short verticals in stable market conditions with clear exit points. Incorporate implied volatility (IV) rank for timing.

• Adaptive Iron Condors: Initiate wide spreads, narrowing wings as realized volatility contracts, and preemptively reduce risk before catalysts. Aim for win rates exceeding 65% while capping potential losses.

• Calendars/Diagonals: Focus on long vega and short theta trades that capitalize on term structure and mean reversion in implied volatility.

• Directional Debit Spreads: Utilize these for cheaper convexity than straight legs, ensuring clearly defined risk.

• Event Plays (Advanced): With advanced strategies, consider reduced-size straddles or strangles when pricing significantly misaligns with expected volatility moves.

Backtesting is vital for preparation. For example, testing a simple SPX iron condor might include:

• Entry: 45 days to expiration, using 10-12 delta wings.

• Exit: At 21 days to expiration or upon reaching 50% max loss on the spread width.

• IV Filter: Engage only when the 30-day volatility rank exceeds 30.

From a decade of data, an unhedged approach yielded a 68-72% win rate but experienced notable drawdowns during 2018 and 2020 when event clustering was ignored. Adjusting for event filters improved the stability of the equity curve significantly. For more specific stock strategies, check our guide to top prop firms for stock options trading.

Risk Management Techniques

• Position Sizing: Risk 0.25–0.75% of equity per spread (defined-risk), reducing to 0.1–0.3% for naked or partially hedged structures, and aggregating at the book level.

• Portfolio Construction: Avoid correlated exposures by managing similar positions tightly to ensure diversification.

• Greeks Guardrails: Predefine maximum net delta and vega limits, alongside per-underlying thresholds. Also, cap daily “theta burn” to manage time decay effectively.

• Time-Based Exits: Be proactive about exiting positions that no longer align with your expectations, especially if trends shift unfavorably.

• Playbook for Adverse Moves: Establish criteria for rolling or closing positions based on specific thresholds (e.g., roll down and out when strikes are breached with expanding IV).

Success Stories from Traders

Case Study 1: Alex, From Equities Momentum to Options Income

Alex transitioned from equities momentum trading, where he struggled with choppy market conditions. During a 45-day options evaluation, his focus shifted to SPX iron condors and put credit spreads with a risk of 0.5% per spread, capping daily vega exposure at 8,000.

• Process: He limited trading to days when IV rank exceeded 25 and stabilized realized volatility, cutting positions by half leading into CPI and FOMC weeks. See our detailed guide on developing a risk management framework for prop firms.

• Results: He achieved a 7.8% return with a 3.9% maximum drawdown. Key improvement came when he ceased rolling due to pride and instead began closing positions upon a 1.2x initial credit loss.

• Insight: The realization that clearer, rules-based exit criteria significantly enhanced his expectancy over merely altering entry conditions.

Case Study 2: Maya, Quant-Minded with Calendars and Vol Filters

Drawing from her quant background, Maya applied a calendar/diagonal framework employing both implied and realized volatility ratios. She focused on indices, looking for IV front/back ratios exceeding 1.1.

• Process: Automated entry signals accompanied by a “danger list” of risks from earnings announcements and macroeconomic events shaped her trading plan. She maintained per-trade risk at 0.3% of equity, capping overall book vega exposure to 10,000.

• Results: During a 30-day evaluation, Maya generated a 6.4% return with only a 2.5% drawdown and minimal event-driven losses.

• Insight: Her approach thrived on the principle of playing only when term structures aligned positively with her strategies.

These case studies illustrate successful patterns focused on conservative risk frameworks and adherence to respective market regimes. To learn more about passing challenges, see how to pass any prop firm challenge.

Common Pitfalls and How to Overcome Them

Common Mistakes Made by New Traders

• Oversizing Positions: Starting with a risk of 2-3% per trade can lead to swift drawdown violations.

• Event Blindness: Holding short premium positions without a rigorous plan during significant market events.

• Neglecting Liquidity: Entering narrow single-name spreads with large bid-ask spreads can lead to significant slippage.

• Lack of Exit Plans: Relying solely on the passage of time when gamma risk spikes can lead to damaging outcomes.

• Strategy Sprawl: Employing multiple strategies without adequate sizing or management can muddle results.

Strategies to Avoid Pitfalls

• Start Small: Progressively scale your sizes only after confirming two consecutive evaluation periods meet risk and profit targets.

• Create an Event Calendar: Default to reducing positions as events approach, and document backtesting for any event strategies.

• Trade Liquid Underlyings: Favor trading in high-volume products like SPX, SPY, QQQ, and top single names to minimize execution risk.

• Pre-commit Exits: Define clear criteria for exiting, based on price, time, or volatility shifts to sidestep unexpected movements.

• Team Dashboard: Maintain a comprehensive overview of net delta, vega, theta, and per-underlying exposure alongside risk heat maps. Be sure to review the risk management rules you must follow.

Additional Resources for Aspiring Options Traders

Educational Tools

• Books:

  • “Option Volatility and Pricing” by Sheldon Natenberg

  • “Options as a Strategic Investment” by Lawrence McMillan

  • “Volatility Trading” by Euan Sinclair

  • “Trading Options Greeks” by Dan Passarelli

  • “The Options Trader’s Hedge Fund” by Berman & Knight

• Courses and Content:

  • Cboe Options Institute (offering a range of foundational and advanced options courses)

  • OCC’s educational resources at OptionsEducation.org

  • Tastytrade educational videos focused on practical strategies

  • Coursera/edX courses on probability and time series for those with a quantitative mindset.

Mock Tests and Simulations

• Paper Trading Platforms:

  • Interactive Brokers PaperTrader (providing comprehensive options simulations)

  • thinkorswim by TD Ameritrade (featuring strategy builders and risk visualizations)

  • Tastytrade platform (great for options strategies and immediate Greeks monitoring)

• Backtesting and Analysis:

  • OptionNet Explorer (historical backtesting capabilities for options)

  • ORATS (screen analytics with some simulation abilities)

  • QuantConnect (for programmatic options research and paper trading)

• Scenario Tools:

  • OptionStrat (for visualizing risk profiles and analyzing “what-if” scenarios)

  • CBOE calculators and tools for implied volatility analysis.

Utilizing these tools will help set up a preparation routine leading to your evaluation: backtest, forward-test in simulations, and transition cautiously to live trading under strict limits.

Frequently Asked Questions

Q: What are the top prop firms that focus on options trading?

Several top institutional firms include SIG, Optiver, IMC Trading, DRW, Akuna Capital, and Jane Street. These firms typically do not sell challenges but engage in recruiting and training. For discretionary trading with options support, consider firms like SMB Capital, Maverick Trading, and T3 Trading Group. Always verify details directly with the firms.

Q: How do options trading challenges in prop firms work?

Candidates generally face a period of simulated trading under strict risk rules before transitioning to live trades at reduced risk levels. Performance is assessed based on P&L relative to drawdown, consistency in results, and adherence to established processes.

Q: What skills are tested in a prop firm options trading challenge?

Expect assessments on your understanding of Greeks, volatility management, position sizing, execution quality, and the ability to follow a repeatable trading playbook.

Q: Can beginners participate in options trading challenges at prop firms?

While some firms welcome beginners committed to training, others prefer candidates with notable experience or quantitative backgrounds. It’s advisable to have a solid grasp of options basics and risk management strategies before applying.

Q: What is the success rate for traders in prop firm challenges?

This varies significantly. Many candidates do not pass on the first attempt due to risk rule violations. Traders who succeed commonly maintain smaller risk profiles, circumvent event-driven trades, and operate under a single, well-tested trading plan.

Q: Are there specific strategies required for prop firm options challenges?

Though strategies may differ among firms, risk control and consistency are universally prioritized. Common practices include defined-risk spreads, calendar/diagonal strategies, and index-focused trades for liquidity and risk clarity.

Q: How do proprietary firms provide capital for options traders?

In discretionary paths, firms allocate their capital based on traders’ performance. In institutional market-making firms, traders are employed and receive firm capital as part of a salaried role.

Q: What are the risks of joining a prop firm for options trading?

Potential risks include fees or capital contributions for certain paths, adherence to strict rules equated with performance pressure, and a restricted environment. However, these constraints often serve to protect traders from making substantial errors.

Q: How do I prepare for a prop firm options trading evaluation?

Develop a solid playbook of one or two strategies, backtest across multiple years, forward-test in simulations for 30-60 days, establish Greeks limits, and document specific entry, exit, and event rules while maintaining a daily journal.

Q: Do prop firms charge fees for options trading challenges?

Institutional firms usually do not charge for challenges. Some remote or discretionary firms may impose training or data fees and capital contributions, making it essential to double-check terms directly with the firm.

Conclusion

Prop Firms with Options Trading Challenges can accelerate your growth if paired with a disciplined, data-driven approach. The right environment offers you capital, tools, and feedback, while your edge stems from clear rules, modest sizing, and a preference for defined risk.

If you’re serious about trading, begin today: select one or two strategies, backtest them thoroughly, impose strict Greeks and loss limits, and conduct a 30-day simulation as though it were your real evaluation. Research firms like SMB, Maverick, or T3 for discretionary roles, and SIG, Akuna, or Optiver for institutional paths, then reach out directly for current details on their offerings.

Your next step: build your playbook, schedule dedicated practice, and apply. And if you’ve already navigated the realm of Prop Firms with Options Trading Challenges, share your experiences or questions, I’d be happy to help refine your approach.