- Buying OTM Options
√ OTM options are cheaper so trader gets tempted to buy
√ Out of the money options contain only time value & no intrinsic value.
√ You will get profit only if spot price move above your strike, else time decay will erode premium and will become zero by expiry.
√ So you may loose total capital applied in trade.
√ It is highly difficult to earn consistent money with this approach
√ So avoid OTM option buying
- Not having exit plan
√ This is biggest mistake people do, they neither decide target nor stop loss
√ Because of which you may loose profitable trade into loss
√ Also at what loss to exit.? If you don’t decide this you may end up with big loss.
√ How to deal with it.? Decide target & stoploss before entering in trade and put the same in system not in mind.
√ Use trailing stoploss to protect profit.
- Always expecting Jackpot
√ Traders think that options are made for jackpot gain only and we should get it daily.
√ It gives good feeling & confidence when we get jackpot gains.
√ But it is highly difficult to get it regularly.
√ Because script don’t move as per our expectations.
√ So focus on consistent gains rather than big.
- Using same strategy in all conditions
√ Daily market behavior is different
√ It varies as per events, start or end of expiry, unexpected news, global & local scenarios etc
√ Sometime its trendy, sometime it consolidates,
√ So we cant trade with same strategy in all conditions.
√ You have to judge market condition and choose suitable strategy.
- Not considering risk while entering trade
√ When we enter any trade either in options or other market, we think of move in expected direction.
√ But what if script goes in opposite direction. We ignore that risk and gets stuck in trade.
√ So we should first manage risk using option hedging.
√ Remember not loosing big and earning consistently is the key to become successful in stock market.