Mistake 1, critical severity
Risking More Than 5% Per Trade
Putting 10-20% of the account into a single trade. Five consecutive losses (which happen more often than you think) would lose 50-100% of the account. Recovery becomes nearly impossible.
The fix
Risk 1-2% of account per trade for long options. Risk 2-5% for defined-risk strategies. This ensures even 10 consecutive losses only draw down 10-50% of the account, which is recoverable.
What it looks like. $50,000 account risking 10% per trade ($5,000). Four consecutive losses: down $20,000 (40%). Now needs 67% return to get back to even. With 2% risk ($1,000), four losses cost $4,000 (8%). Recoverable in weeks.
Mistake 2, critical severity
Not Accounting for Maximum Loss Scenarios
Sizing based on expected outcome rather than worst case. The worst case is what determines whether your account survives. Expected outcomes are averages; individual trades can be anywhere in the distribution.
The fix
Always size based on maximum possible loss, not expected loss. For credit spreads, that is the width minus credit. For long options, it is 100% of premium. Your account must survive the worst-case scenario.
What it looks like. Sell $5-wide iron condor for $2.00. 'Expected loss is $1.00.' Size for $1.00 risk. Actual loss when breached: $3.00. That is 3x the expected risk. Size for $3.00 maximum loss from the start.
Mistake 3, high severity
Not Limiting Total Portfolio Risk
Having 15 positions each sized at 3% risk. Total portfolio risk: 45%. If the market drops 5%, correlated positions all lose simultaneously. The portfolio-level loss can be devastating.
The fix
Limit total portfolio risk to 15-20% of account at any time. This means either fewer positions or smaller per-trade sizing. Track total delta, total theta, and total maximum risk across all positions daily.
What it looks like. 10 bull put spreads on different stocks, each 3% risk. Market drops 3%. Eight of 10 hit max loss (correlated). Portfolio loses 24% in one day. Should have limited total exposure to 15%.
Mistake 4, high severity
Increasing Size After Winning Streaks
Gradually increasing position sizes after a profitable period because 'I know what I am doing now.' The larger sizes mean the inevitable losing streak hits much harder.
The fix
Keep position sizes fixed as a percentage of current account value. If your account grows from $50,000 to $60,000, 2% grows from $1,000 to $1,200 automatically. Never increase percentage allocation after wins.
What it looks like. Win 8 trades in a row at 2% sizing ($1,000 each). Feel confident, increase to 5% ($2,500). Next 3 trades lose. Loss: $7,500 (12.5% of account). Had you stayed at 2%, loss would be $3,000 (5%).
Mistake 5, medium severity
Same Size for Different Strategy Types
Risking the same dollar amount on weekly 0DTE options as on 45 DTE credit spreads. The risk characteristics are completely different and require different sizing.
The fix
Adjust size by strategy risk profile. Lower risk (45 DTE credit spreads): 3-5% per trade. Medium risk (30 DTE directional): 2-3%. High risk (weekly/0DTE): 0.5-1%. The higher the risk, the smaller the position.
What it looks like. $500 on a 45 DTE iron condor is reasonable. $500 on a 0DTE call is 50x more volatile. The 0DTE position should be $50-100 based on the much higher variance of outcomes.
