5 Reasons Why Most Options Traders Lose Money
Updated: Sep 10
The solutions listed here will probably save readers millions of dollars..
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Chances are you've lost money trading options.
Think about a time you lost money when trading options. What happened?
Did you enter at the top? Did you exit too early?
It happens to everyone. I know it happened to me when I first began trading options.
I would enter long at the top and enter short at the bottom.
I imagine I'm not alone in this, In fact..
it's accepted wisdom on Wall Street that 90% of investors lose money trading options
There's many reasons why 90% of options traders lose. Let's list a few of them!
We've been there. We're winning in our options trade, it feels great!
Next thing you know, you're up an insane amount. What do you do?
I'll hold longer you say, and you do, at least 90% of you do actually.
Next day what happens? Bam! The option suddenly becomes worthless overnight.
What happened here? 1 answer, it is greed. You did not take profits when you were in profits by a huge amount when you could and the trade went against you. This happens to the majority of options traders, including me.
Lock in profits when you reach a certain % of value in your contracts. This is because money can flow out of an option any minute of any day and you want to exit them to find a new opportunity right away. Never put your capital into 1 trade either. At SmartOptions we give profitable entries and exits. We always have multiple new opportunities everyday!
2. Playing too early of an Expiry Date
I know the lot of you want to get rich fast and it is possible with options trading, don't get me wrong, it is possible in options trading, but not in weeklies!
What are weeklies?
Weeklies are option contracts that expire within 7 days. its not recommended you play them.
These contracts are highly volatile, and are usually make it or break it trades.
Although you may win big in some weeklies, you will find out you will lose most of your profits in the long run playing weekly expiring contracts.
Traders that trade weeklies are only thinking short term. This does not work in the long run.
Make sure your contracts have at least 30 days before they expire. This gives you time to hold through any price volatility you might face in the short term. Our service helps you with that here.
3. They try to short the market
The stock market has been going up for 100 plus years. That is 100 years of uptrend. On average, the market goes up 9% every year!
Stocks go up 85% of the time and go down 15% of the time. If you try to play the 15% and not the 85%, you will find yourself losing in more of your options trades! Seriously!
There's an easy solution to this actually! Do not buy puts or short the market in anyway. Play longs and you see yourself winning most of your trades! This secret took me over 2 years to discover. Discover more of our Options expertise through our alerts service here.
4. They risk too much in one trade.
Although the stock market goes up 85% of the time, it is still hard to predict the short term day to day prices. Even if you are confident in a trade, you can still lose.
Trades you are confident in are super dangerous. Confidence causes traders to put more of their money on the line! It happens to all losing traders.
No matter what, never put all your money into one options trade, no matter how confident you are in the direction. Have a budget per trade and stick to it!
5. They buy when volatility is at a local top.
You may see a price of a stock going up! Woohoo! Time to get in you think. Sure thing, you get in! Bam! the options value crashes but the price is still the same.
You bought at the top of the premium or you bought too early of an expiry date. Even if price moves, if you buy at the top of a relative top or too soon of an expiry, your option can devalue quick still!
Buy in when there's a price dip and buy longer expiry options. This causes your premiums to go down and you get in at a nice price, increasing your total ROI. This adds up to big numbers over time.