Most early losses in options come from a handful of avoidable mistakes. Here are the ones that show up again and again.
- Buying cheap far OTM options because they are cheap, not because they fit a view.
- Ignoring implied volatility and overpaying before events.
- Trading illiquid strikes with wide bid-ask spreads.
- Holding to expiry by default instead of planning an exit.
- Selling naked options without understanding the worst case.
- Sizing too large on a single trade.
- Averaging down on losing option positions.
- Forgetting costs: brokerage, taxes and slippage.
- Trading on tips instead of a plan.
- Not keeping a record of trades and reasons.
The common thread
Almost every mistake on this list comes from skipping the planning step. Decide size, risk and exit before you enter, and most of them disappear.
This article is for education only and is not financial advice. Options involve risk and are not suitable for every investor.