(And How to Avoid Them)
The financial markets have a way of exposing human frailties faster than any other endeavor. In options trading, the line between success and disaster is often drawn by behaviors, not just strategies.
Like a poorly constructed iron condor, traders set themselves up to collapse under the weight of their own bad habits. They chase gains, ignore probabilities, and fall prey to the same errors their predecessors made.
Below are seven behavioral pitfalls that separate those who survive from those who don’t. Ignore them at your own peril.
1. Greed: The Leverage Trap
Leverage is an intoxicant, and options provide it in abundance. The temptation to bet big—on short-term out-of-the-money calls, on oversized positions, on dreams of 500% gains—is the undoing of many traders. The more you risk, the more the market punishes you.
🔹 Case in Point: A trader buys a cheap weekly call on Tesla. The stock moves in their favor, but implied volatility drops, leaving them with a net loss. They blame the market instead of their failure to understand how options are priced.
How to Avoid It:
- Trade small. If one trade can ruin your account, you’re trading too big.
- Favor defined-risk strategies like spreads instead of naked positions.
- Exit winners incrementally—nobody goes broke taking profits.
2. Impatience: Fighting Time Decay
An option’s greatest enemy is time. Many traders ignore theta decay and place bets where the odds are stacked against them.
🔹 Reality Check: Buying out-of-the-money options is often a losing game. The underlying stock must move significantly in a short time, and even if it does, volatility crush can erase your gains.
How to Avoid It:
- Use probability to your advantage—sell premium instead of buying it.
- Trade high-probability spreads instead of relying on luck.
- Favor options with 30–60 days to expiration, where time decay is less aggressive.
3. Fear: Letting Losers Run, Cutting Winners Too Soon
Fear turns rational traders into emotional wrecks. It’s why losing trades get held too long and winning trades are sold too soon. If you’ve ever refused to close a bad trade because “it might come back,” you’ve fallen into this trap.
🔹 Example: A trader sells a credit spread. The stock moves against them slightly, and panic sets in. They close the trade early for a loss—only to see it expire worthless.
How to Avoid It:
- Follow the probabilities—if the trade is still in your favor, trust the math.
- Use systematic stop-losses or rolling strategies instead of emotional decisions.
- Let winners run to 50-75% max profit instead of panicking at the first sign of reversal.
4. Pride: The Refusal to Admit You’re Wrong
The market doesn’t care about your opinion. It doesn’t care that you spent hours analyzing a trade, nor does it care how much conviction you have. Traders who cling to losing trades out of stubbornness will eventually donate their capital to those who don’t.
🔹 Classic Mistake: A trader insists a stock is “too high” and keeps selling calls against it. The stock keeps rallying. They double down, convinced the market is wrong. Their losses mount.
How to Avoid It:
- Have an exit plan before entering a trade.
- Avoid doubling down on a bad idea.
- Accept that being wrong is part of the game.
5. Sloth: Trading Without an Edge
The laziest traders are the ones who take the markets at face value. They buy options without understanding IV percentile, fail to check expected move, and trade earnings without knowing the historical win rate.
🔹 Fact: Options trading is a game of probabilities. If you don’t know the math behind your trades, you’re gambling, not trading.
How to Avoid It:
- Analyze IV rank before trading.
- Trade setups with at least a 60% probability of profit.
- Use delta, gamma, theta, and vega to manage risk properly.
6. Envy: Chasing Trades You Don’t Understand
Social media has turned trading into a spectacle. Every day, someone posts a screenshot of a 1,000% gain—and every day, someone else blows up their account trying to replicate it.
🔹 What They Don’t Tell You: For every big winner, there are a dozen blown accounts hidden in the shadows. Traders often post only their wins, creating the illusion that lottery-ticket trades are a viable strategy.
How to Avoid It:
- Don’t copy trades without understanding them.
- Stick to strategies that align with your skill level.
- Trade your own plan, not someone else’s.
7. Gluttony: Overtrading for the Sake of Trading
Options provide an endless stream of opportunities. But more trades don’t mean more profits—just more chances to make mistakes.
🔹 The Overtrader’s Trap: A trader starts with a solid strategy. After a few wins, they expand their trading to every setup they see. Eventually, poor-quality trades dilute their edge, and they give back their gains.
How to Avoid It:
- Trade fewer, higher-quality setups.
- Set entry criteria and stick to them.
- Let the best trades come to you—don’t force it.
The Path to Trading Redemption
Options trading is not about being right—it’s about managing risk better than the other guy.
The difference between successful traders and those who get steamrolled is discipline.
- Greed will wreck your account.
- Impatience will erode your edge.
- Fear will make you exit too soon or too late.
- Pride will make you fight the market and lose.
- Sloth will leave you uninformed and unprepared.
- Envy will make you chase someone else’s success.
- Gluttony will make you trade too much and too often.
The antidote? Follow probabilities, respect risk, and trade only when the odds are in your favor.
In the end, the traders who survive and are successful aren’t the ones with the best predictions. They’re the ones who make the fewest mistakes.
After 22 years in the financial publishing industry, I’ve seen too many options newsletters filled with hype, overpriced gimmicks, and empty promises. That’s why I created The Option Premium—a straightforward, high-quality options trading newsletter packed with education, actionable trades, weekly indicators, and portfolio strategies that actually move the needle.
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Probabilities over predictions,
— Andy Crowder
