9 Weeks to Better Options Trading: 5 Rookie Mistakes to Avoid Like the Plague
Veteran options trader Steve Smith identifies five pitfalls that options traders need to know about -- and avoid at all costs.
1. Swinging for the Fences Ahead of Earnings
When people talk about trading options, the conversation usually turns to ultra-risky strategies. By far, the most common of these is buying call or put options ahead of an earnings number in the hopes of hitting a home run. The upside in being right about such an unpredictable event is a big fat profit.
The downside when you're wrong? That'd be 100%. As in, the underlying stock gaps against you, the options are left worthless.
There is nothing wrong with making the occasional speculative bet, but you have to understand the risk involved and keep the position right-sized.
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