Mistake 1, critical severity
Holding Credit Spreads to Expiration
Waiting for the last 50% of credit to decay means risking the entire spread width for a small remaining profit. The risk/reward of holding deteriorates dramatically after 50%.
The fix
Close credit spreads and iron condors at 50% of max profit. If you collected $2.00, close when worth $1.00. Research shows this improves annual returns by 10-15% compared to holding to expiration.
What it looks like. Collected $2.00 on iron condor, worth $1.00 now (50% profit). Holding for last $1.00 means risking $3.00 (max loss minus current value) to make $1.00. Risk/reward: 3:1 against you. Close it.
Mistake 2, critical severity
Letting Long Options Winners Become Losers
Buying a call, watching it go up 100%, not taking profit, then watching it come all the way back to zero. Greed prevents profit-taking on winning directional trades.
The fix
Set profit targets before entering. For long options, consider taking 50% off at 50% gain and trailing a stop on the rest. Never let a 100%+ winner turn into a loser.
What it looks like. Buy TSLA $250 call for $5.00. It rises to $12.00 (140% gain). Hold for 'more.' TSLA pulls back 8%. Call drops to $4.50. A $7,000 potential gain turns into a $500 loss.
Mistake 3, high severity
Refusing to Close Because 'There Is Still Time'
Holding a profitable trade because there are still 10 days until expiration. But the remaining profit is small while the risk of reversal is high.
The fix
Time remaining does not change the risk/reward math. If you have captured 80% of max profit with 10 days left, close it. The remaining 20% is not worth the risk. Reinvest in a new trade.
What it looks like. Iron condor at 80% profit with 12 DTE. 'Let it expire for the last 20%.' Stock has a volatile day, position drops to only 40% profit. Held 10 days for nothing; should have closed at 80%.
Mistake 4, high severity
No Systematic Profit Rules
Making profit-taking decisions emotionally and inconsistently. Sometimes taking profits at 25%, other times holding for 100%. Inconsistency leads to poor average outcomes.
The fix
Set rules before trading: credit strategies close at 50% profit. Debit strategies close at 75-100% profit. Apply these rules consistently regardless of emotion or market conditions.
What it looks like. Trade 1: Close at 20% profit. Trade 2: Hold to 100%. Trade 3: Close at 10%. Trade 4: Hold until max loss. No pattern, no edge. Systematic rules (close all at 50%) produce far better results.
Mistake 5, medium severity
Ignoring the Opportunity Cost of Holding
Holding a position for the last 20% of profit ties up margin that could be used for a new trade. The opportunity cost of sitting in a nearly-maxed trade is often higher than the remaining profit.
The fix
Calculate the annualized return of remaining profit vs. a new trade. If closing at 50% and opening a new position yields better annualized returns, close and rotate.
What it looks like. Iron condor at 50% profit after 10 days. Remaining $100 would take another 20 days. Annualized return on remaining: 91%. Close and open new position: annualized 150%+. Closing and rotating wins.
