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9 Weeks to Better Options Trading: 5 Rookie Mistakes to Avoid Like the Plague

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Veteran options trader Steve Smith identifies five pitfalls that options traders need to know about -- and avoid at all costs.

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3. Failing to Understand Time Decay

Traders also commonly fail to realize that options are a wasting asset. One very important component in the price of an option is the time until expiration. So as time goes on, the value of that time decays, with a negative impact on the overall value of the option itself.

If you buy calls or puts outright, and the underlying stock moves in your direction at a slow pace, the option may not gain in value.

However, a basic understanding of option pricing and a grasp of a variety of trading strategies will allow you to offset the impact of time decay -- or even turn it to your advantage.

In future lessons, we'll be exploring strategies that will allow you to do so.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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