5 Option Trading mistakes Trader should avoid

  1. 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

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

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