80% of investors who trade options lose money
But you don't have to be one of them
These are the top 10 mistakes beginner options traders make
And how to avoid them:
But you don't have to be one of them
These are the top 10 mistakes beginner options traders make
And how to avoid them:
Options have their benefits
You can cut losses, protect gains & control large chunks of stock with a relatively small outlay
But, you can quickly lose more money than you invested with options
This is different to owning a stock outright where the lowest it can go is $0
You can cut losses, protect gains & control large chunks of stock with a relatively small outlay
But, you can quickly lose more money than you invested with options
This is different to owning a stock outright where the lowest it can go is $0
So, it's important to know the basics
Invest in the knowledge you need to succeed and avoid making the following mistakes
These are the 10 mistakes often made by beginner traders, along with some bad strategies you should avoid!
Let's get into it ⬇️
Invest in the knowledge you need to succeed and avoid making the following mistakes
These are the 10 mistakes often made by beginner traders, along with some bad strategies you should avoid!
Let's get into it ⬇️
1. Buying Out-of-the-Money (OTM) Call Options
This seems like a good place to start for many new traders due to the low cost
Buy a cheap call option and see if you can pick a winner!
But they are one of the hardest ways to make money consistently in options trading
This seems like a good place to start for many new traders due to the low cost
Buy a cheap call option and see if you can pick a winner!
But they are one of the hardest ways to make money consistently in options trading
2. Misunderstanding Leverage
Beginners misuse the leverage factor offered by option contracts without realizing how much risk they’re taking
They’re often drawn to buying short-term calls
Since this is the case so frequently, it's worth asking...
Beginners misuse the leverage factor offered by option contracts without realizing how much risk they’re taking
They’re often drawn to buying short-term calls
Since this is the case so frequently, it's worth asking...
Is the outright buying of calls a “speculative” or “conservative” strategy?
Beginner rule: If you usually trade 100 share lots, stick with one option to start
If you normally trade 300 share lots, maybe try three contracts
This is a good test amount to start with
Beginner rule: If you usually trade 100 share lots, stick with one option to start
If you normally trade 300 share lots, maybe try three contracts
This is a good test amount to start with
3. Having No Exit Plan
Just as with stocks, you need to avoid emotional attachment to your trades
Don't overcomplicate it.
Make a plan, and stick to it!
Even when things go your way, you should know your upside exit point, downside exit point & your timeframes in advanced
Just as with stocks, you need to avoid emotional attachment to your trades
Don't overcomplicate it.
Make a plan, and stick to it!
Even when things go your way, you should know your upside exit point, downside exit point & your timeframes in advanced
4. Not Being Open to New Strategies
Many option traders claim to never buy out-of-the-money options or sell in-the-money options
These absolutes are stupid
When they find themselves in a trade that’s moved against them, they'll be tempted to break all kinds of personal rules
Many option traders claim to never buy out-of-the-money options or sell in-the-money options
These absolutes are stupid
When they find themselves in a trade that’s moved against them, they'll be tempted to break all kinds of personal rules
Be open to learning new strategies
Remember, options are derivatives
This means their prices don’t move the same or even have the same properties as the underlying stock
Time decay, whether good or bad for the position, always needs to be factored into your plans
Remember, options are derivatives
This means their prices don’t move the same or even have the same properties as the underlying stock
Time decay, whether good or bad for the position, always needs to be factored into your plans
5. Trading Illiquid Options
Liquidity is about how quickly a trader can buy or sell something without causing a significant price movement.
A liquid market is one with ready, active buyers & sellers.
This is important to note
Liquidity is about how quickly a trader can buy or sell something without causing a significant price movement.
A liquid market is one with ready, active buyers & sellers.
This is important to note
Because trading options on an illiquid stock could cause the spread between the bid and ask price for the options to get artificially wide
This could result in you initiating a position with a 10% loss straight off the bat
This could result in you initiating a position with a 10% loss straight off the bat
6. Waiting Too Long to Buy Back Short Options
In summary: Always be ready and willing to buy back short options early
Too often, traders will wait too long to buy back the options they’ve sold. There are countless reasons why
👉 Know when to buy back your short options
In summary: Always be ready and willing to buy back short options early
Too often, traders will wait too long to buy back the options they’ve sold. There are countless reasons why
👉 Know when to buy back your short options
7. Failure to Factor Upcoming Events
Not all events are foreseeable, but earnings & dividend dates for your underlying stock are
Example: You’ve sold calls and there’s a dividend approaching
This will increase the odds of being assigned early if the option is already ITM
Not all events are foreseeable, but earnings & dividend dates for your underlying stock are
Example: You’ve sold calls and there’s a dividend approaching
This will increase the odds of being assigned early if the option is already ITM
That’s because options owners have no rights to a dividend
To collect, the options trader must exercise the option and buy the underlying stock
Be sure to factor this in and know the ex-dividend date
Also, steer clear of selling options contracts with pending dividends
To collect, the options trader must exercise the option and buy the underlying stock
Be sure to factor this in and know the ex-dividend date
Also, steer clear of selling options contracts with pending dividends
8. Legging Into Spreads
Beginners will try to “leg into” a spread: buying the option first & selling the second option later
They’re trying to lower the cost by a few pennies and it isn’t worth the risk!
Experienced traders have also been burned by this & learned the hard way
Beginners will try to “leg into” a spread: buying the option first & selling the second option later
They’re trying to lower the cost by a few pennies and it isn’t worth the risk!
Experienced traders have also been burned by this & learned the hard way
9. Not Knowing What to Do When Assigned
If you sell options, remind yourself that you can be assigned before the expiration date
Lots of new options traders never think about assignment as a possibility until it happens
Always have a plan in place
If you sell options, remind yourself that you can be assigned before the expiration date
Lots of new options traders never think about assignment as a possibility until it happens
Always have a plan in place
10. Ignoring Index Options for Neutral Trades
Individual stocks can be quite volatile
However, even serious turmoil in a major company in the S&P 500 probably wouldn’t cause that index to fluctuate very much
Neutral trades on indexes can partially shield you from volatility
Individual stocks can be quite volatile
However, even serious turmoil in a major company in the S&P 500 probably wouldn’t cause that index to fluctuate very much
Neutral trades on indexes can partially shield you from volatility
Options are a great way of diversifying, limiting risk, and generating profit if executed well
I've seen many beginners start trading options, full of enthusiasm
Only to end up getting burnt very quickly
If you want to start trading options
I've seen many beginners start trading options, full of enthusiasm
Only to end up getting burnt very quickly
If you want to start trading options
Or you want to improve your trading game
Make sure you do your research and understand the basics of the various strategies that can be deployed
And more important, WHEN to use each one
Make sure you do your research and understand the basics of the various strategies that can be deployed
And more important, WHEN to use each one
I've written a concise, 7-chapter ebook
To help as many people as possible to avoid unnecessary losses, lower risk and increase profitability
The first 100 copies are just $13 (Then $29)
And there are only 20 left
Click here to get yours ⬇️
financiallysavvy.gumroad.com
To help as many people as possible to avoid unnecessary losses, lower risk and increase profitability
The first 100 copies are just $13 (Then $29)
And there are only 20 left
Click here to get yours ⬇️
financiallysavvy.gumroad.com
19 left
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