1. FOMO of Theta Decay :
A lot of content about options trading revolves around selling Straddles/Strangles in the morning, and because of that most traders are using different variations of the same strategy. As a pro trader, you need an edge beyond theta decay.
Here’s how:
Trade at Key Levels: Trade when the market is near support or resistance levels. Understanding the market's direction can give you better returns.
Capitalize on IV Spikes: Patience can pay off. Waiting for an IV spike can present better opportunities.
2. Ignoring Risk Management
Not having an exit plan is the biggest mistake when trading options. I have seen people lose more than 20% of their capital in a day when their risk tolerance was just 2%. As a pro trader, you need to ensure your capital is protected.
Here's how:
Place a stop-loss order alongside the main trade. Don't leave it to chance because when you start losing money, you might wait for a recovery, and option prices can sometimes keep rising endlessly.
If your trade has too many legs and you can't place a stop-loss order for each one, use an account-level stop-loss. You can use Quantplay RMS to set up a stop-loss for your account. This way, the system ensures you don't lose more capital than expected.
Trade in spreads with close hedges: Implementing spreads with close hedges can minimize risks, the risk is inbuild and verify it using payoff charts before placing the trade.
3. Doing what everyone is doing
90% of traders lose money, and only 1% make more than a fixed deposit return. If you trade like everyone else, you'll get similar results.
Here's how you can avoid that.
Avoid Expiry Trading: Focus on trading options with 1-3 days to expiry (1dte, 2dte, 3dte) instead of just trading on expiry days.
Use Hedges Wisely: Don't just use hedges for margin benefits; ensure they genuinely minimize your risk. Always check the payoff chart to understand your risk profile.
Don't overprotect one side by selling more quantity on the opposite side, as this can lead to significant unexpected losses.
By addressing these common mistakes, you can improve your trading strategies and achieve better results as an option seller.