Mistake 1, critical severity
Overleveraging / Position Too Large
Risking more than 2-5% of your account on a single trade. One bad trade can wipe out months of gains or blow up your account entirely.
The fix
Limit position size to 1-2% of account value. Use defined-risk strategies like spreads. Never put more than 5% total in any single underlying.
What it looks like. Trader puts 20% of $10K account into weekly calls. Stock drops 5%, options lose 80%. $1,600 loss in one trade - 16% of account gone.
Mistake 2, critical severity
Ignoring Implied Volatility
Buying options when IV is elevated, only to suffer IV crush even when direction is correct. Many traders focus only on price and ignore volatility.
The fix
Always check IV rank before buying. Buy options when IV is low, sell options when IV is high. Use spreads to reduce vega risk.
What it looks like. Buy TSLA calls before earnings at 80% IV rank. Stock goes up 3%, but IV drops 50%, option loses 30% despite being right on direction.
Mistake 3, high severity
No Exit Plan
Entering trades without predetermined profit targets and stop losses. Leads to holding losers too long and cutting winners too early.
The fix
Before every trade, define: profit target (50-75% of max), max loss (100-200% of premium), and time stop (close at 50% time remaining).
What it looks like. Trader buys calls, stock drops 10%. 'It'll come back.' Stock drops another 10%. Option expires worthless. Never had a stop loss.
Mistake 4, high severity
Trading Without Understanding Greeks
Not understanding how delta, theta, vega, and gamma affect option prices. Leads to surprise losses and poor strategy selection.
The fix
Learn the Greeks before trading real money. Understand how each Greek affects your position. Use our Greeks Heatmap to visualize exposure.
What it looks like. Trader sells ATM straddle not understanding gamma risk. Stock moves 3%, position loses 15% due to accelerating delta exposure.
Mistake 5, medium severity
Buying OTM Options (Lottery Tickets)
Repeatedly buying cheap OTM options hoping for a big win. While occasionally successful, the probability is against you and losses compound.
The fix
Buy ATM or slightly OTM options for directional trades. Consider spreads to reduce cost. Reserve lottery tickets for 1-2% of account max.
What it looks like. Trader spends $200/week on OTM weekly calls for 6 months. Total spent: $4,800. Total wins: $600. Net loss: $4,200.
