10 Common Options Trading Mistakes
Over 75% of options traders lose money - not because options are inherently risky, but because they make preventable mistakes. This guide reveals the 10 most common errors and how to avoid them.
Buying Out-of-the-Money Options Because They're "Cheap"
The Problem:
New traders see an OTM call trading for €50 and think, "If the stock goes up just 10%, I'll make huge returns!" They buy 10 contracts for €500, not realizing these options have a low probability of profit.
Why It's Dangerous:
- OTM options have zero intrinsic value
- They only profit if stock moves significantly before expiration
- Time decay (theta) works against you exponentially
- IV can crush option value even if you're right about direction
The Fix:
Start with at-the-money (ATM) or slightly in-the-money (ITM) options. Look for delta >0.50 for calls (>-0.50 for puts). Accept paying more premium for higher probability.
Example:
€120 call (far OTM) for €0.50 — needs 20% move
€100 call (ATM) for €5.00 — needs only 5% move
Ignoring Implied Volatility (IV)
The Problem:
Buying options when IV is extremely high without realizing you're paying inflated premiums that will collapse post-event (earnings, FDA approval, etc.).
Why It's Dangerous:
- High IV = expensive options
- IV crush can wipe out gains even if you're right about direction
- You can be directionally correct and still lose money
The Fix:
Check IV Rank or IV Percentile before buying. Avoid buying options right before known events (earnings). Consider selling options when IV is high, buying when IV is low.
Example:
Stock at €50 before earnings, IV: 80% (very high). You buy €55 call for €2.00. Stock rallies to €54 (+8%!). IV drops to 30% post-earnings. Your call is now worth €1.20 (40% loss).
Overleveraging Your Account
The Problem:
Putting 50-100% of your account into a single options trade because "I'm really confident about this one."
Why It's Dangerous:
- One bad trade can wipe out your entire account
- Options can go to zero (unlike stocks)
- Emotional decision-making increases with position size
- No room for recovery
The Fix:
Risk Rule: Never risk more than 1-2% of your account per trade. Position Sizing: Limit each position to 5-10% of total capital. Stop-Loss: Set maximum loss tolerance (e.g., exit at -50% of premium).
Holding Options Until Expiration
The Problem:
"I'll just wait until expiration to see what happens" or "Maybe it'll come back."
Why It's Dangerous:
- Time decay accelerates in the final 30 days
- Theta can erode 50%+ of value in the last week
- Weekend risk and expiration risk
- Binary outcome (all or nothing)
The Fix:
Exit Winners Early: Take profits at 50-75% of max gain. Cut Losers Fast: Exit at -50% or when thesis is invalidated. Avoid Expiration Week: Close positions 7-14 days before expiry.
Not Understanding the Greeks
The Problem:
Buying an option without knowing its Delta, Theta, Vega, or Gamma. Trading blind.
Why It's Dangerous:
- You don't know how much you'll make if the stock moves
- You can't predict daily time decay
- You're unaware of volatility risk
- Position management becomes impossible
The Fix:
Learn the essential Greeks: Delta (how much option price changes per €1 stock move), Theta (daily time decay), Vega (change per 1% IV move), Gamma (rate of Delta change).
Frequently Asked Questions
What's the biggest mistake beginner options traders make?
The biggest mistake is overleveraging — putting too much of your account into one or two trades. Options can go to zero, and even experienced traders have losing streaks. Never risk more than 1-2% of your account on any single trade.
Is it better to buy or sell options?
Neither is inherently better — it depends on market conditions. Buying options (long) works best when IV is low and you expect a significant price move. Selling options (short) works best when IV is high and you expect the stock to stay range-bound.
How do I avoid IV crush?
Check IV Rank before buying options. Avoid buying options right before earnings or major events when IV is elevated. If you must trade around events, consider selling options instead (collecting high IV) or use far-dated options (90+ DTE) to minimize IV impact.
Should I hold options until expiration?
Almost never. Time decay (theta) accelerates dramatically in the final 7-14 days. Professional traders typically close or roll positions 2-4 weeks before expiration. If you have a profit, take it early — don't let theta erode your gains.
How much money do I need to start trading options?
You can technically start with €500-€1,000, but €2,000-€5,000 is more realistic for proper risk management. With too little capital, you're forced to trade cheap (risky) OTM options or risk too much per trade. Remember the 1-2% risk rule.
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