The 10 mistakes: (1) buying weekly options, (2) selling naked options, (3) ignoring IV crush on earnings, (4) position-sizing too large, (5) chasing meme-stock implied volatility, (6) ignoring the bid-ask spread, (7) failing to manage winners (greed), (8) failing to manage losers (hope), (9) trading without a written plan, and (10) confusing options for a stock substitute. Each is fixable with awareness. Most retail options traders make 6-8 of these in their first 6 months.
Mistake 1 — Buying weekly options
Weekly options (1-7 days to expiration) have the highest theta decay. A 1-week call typically loses 60-80% of its value over the week even if the stock moves favorably. Most weekly options expire worthless.
Fix: For your first 6 months, only trade options with 30-60 days to expiration. Theta decay is real but manageable at that timeframe.
Mistake 2 — Selling naked options
Selling a naked call (without owning the underlying) or a naked put without cash collateral exposes you to theoretically unlimited or extreme losses. Even when the strategy looks good in a backtest, one tail event can wipe out years of premium income.
Fix: Only sell covered calls (own the underlying) or cash-secured puts (have the cash to buy). Never sell naked.
Mistake 3 — Ignoring IV crush on earnings
Implied volatility (IV) spikes before earnings announcements as the market prices in uncertainty. After earnings, IV collapses — even if the stock moves your direction, the IV crush can negate your gains.
Worked example: Stock X is at £100 with earnings tomorrow. IV is 80% (elevated). You buy a £105 call at £4 premium. After earnings, stock jumps to £108 (good move) but IV crashes to 30%. Your call is now worth £3.50 — you lose money despite the favourable move.
Fix: Avoid buying long options through earnings. If trading earnings, use defined-risk strategies (iron condors) that profit from IV decay rather than direction. See the earnings + IV crush guide.
Mistake 4 — Position-sizing too large
Risking 20% of your portfolio on a single options trade is portfolio-killing. Even at 70% win rate, a 30% loss on each loser means a long-term losing strategy.
Fix: Risk no more than 2-5% of your portfolio on a single options trade. For higher-conviction directional trades, 5%. For lower-conviction strategies, 2-3%. See the position sizing guide.
Mistake 5 — Chasing meme-stock implied volatility
GameStop, AMC, BBBY in 2021 had implied volatility 150-300%. Tempting because premiums are huge. Reality: the IV reflects the true risk of catastrophic moves.
Selling premium on these stocks looks easy until the stock gaps 40% overnight and your "high-probability" cash-secured put suddenly costs you 10× the premium received.
Fix: Trade options on quality large-cap stocks (£10bn+ market cap) for your first 6-12 months. Reserve meme-stock options for after you have 50+ trades of experience.
Mistake 6 — Ignoring the bid-ask spread
Options markets often have wide bid-ask spreads — sometimes 10-20% of the option premium. Trading at the asking price and selling at the bid can cost 10%+ on every round trip.
Example: Option bid 0.95 / ask 1.05 (spread 0.10 = ~10% of premium). Round trip cost: 0.10 = 10% of premium.
Fix: Only trade options on highly liquid underlyings (top 50 US stocks, S&P 500 index). Use limit orders, not market orders. Aim to fill at mid-price (bid+ask)/2.
Mistake 7 — Failing to manage winners (greed)
An option position up 50% in 2 weeks often closes flat or losing within another 2 weeks. Theta decay is relentless — gains have to be banked. Most retail traders give back winners hoping for "the big one."
Fix: Set a rule: if a long option position is up 50% by mid-cycle (15 days into a 30-day option), close half and let the rest run. If up 100% at any point, close the entire position.
Mistake 8 — Failing to manage losers (hope)
An option down 50% is rarely going to recover before expiration unless you have a catalyst. Most retail traders hold losers hoping for a reversal — then the option expires worthless and they realise -100%.
Fix: Set a rule: close any long option position at -50% of premium. Don't add to losers ("doubling down"). Position-size such that a -50% loss is acceptable to your overall portfolio.
Mistake 9 — Trading without a written plan
"I think AAPL is going up so I'll buy calls" is not a plan. A plan covers: entry criteria, position size, target profit, stop loss, holding timeframe, what to do on adverse news.
Fix: Before every trade, write 3 things: (a) why this trade now, (b) what's the maximum I can lose, (c) at what target do I close. If you can't answer these in 30 seconds, don't trade.
Mistake 10 — Confusing options for a stock substitute
Many retail traders use options as leveraged stock substitutes — buying out-of-the-money calls instead of buying the stock. The problem: even if your directional view is right, you can lose to time decay, IV crush, and gap moves.
Fix: Use options for what they're designed for — leveraged directional bets with limited downside, or income generation from sold premium. If you want simple stock exposure, just buy the stock.
The pre-trade checklist
Before every options trade, ask:
- Is the underlying highly liquid (top 50 stocks or index)?
- Is the bid-ask spread tight (under 5% of premium)?
- Is expiration 30-60 days out?
- Is position size 2-5% of portfolio?
- Do I have a written plan (entry, target, stop)?
- Am I avoiding earnings or other major catalysts?
- Have I confirmed the tax position (which wrapper)?
If you can answer "yes" to all 7, your trade is likely well-structured. If you have a "no" answer, address it before placing.
Sources and methodology
This page is educational only. Options can result in 100% loss of premium and (when selling) potentially unlimited loss. The empirical observation that "most options traders lose money" is supported by broker disclosure: 70-89% of retail CFD/derivative accounts lose money per FCA-required broker disclosures. Options have similar dynamics. See the tax adviser editorial recommendation for personalised advice. The methodology page documents sources.
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Every page is reviewed against the editorial standards, written from primary sources, sourced openly, and corrected publicly. No affiliate revenue. No sponsored content. No paid placements.