Why Your Best Options Trades Are Setting You Up to Fail
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You just nailed three iron condors in a row. SPY stayed perfectly between your strikes, theta decay worked like clockwork, and you closed each position at 20% profit in under two weeks. You’re feeling invincible. Sound familiar?
Welcome to overconfidence bias—the silent killer of options portfolios.
The Psychology Behind the Bias
Overconfidence bias tricks us into believing we’re better traders than we actually are, especially after a string of winners. In options trading, this becomes particularly dangerous because our strategies often work… until they spectacularly don’t.
Professional traders have hammered this point home for years: consistency beats home runs every single time. Yet when we’re riding high, we forget this fundamental truth.
The problem isn’t that you made money—it’s what success does to your decision-making process. Overconfidence manifests in several ways:
Position sizing creep happens first. That iron condor that worked great with $1,000 at risk suddenly looks even better with $5,000 on the line. After all, you “know” what you’re doing now, right?
Strike selection gets aggressive. Instead of sticking to the tried-and-true 16-delta short strikes that research validates, you start selling 30 or 35-delta strikes for that extra premium. Hey, you’ve been picking direction correctly lately.
Management rules get ignored. The 25-50% profit taking guidelines? Those are for beginners. You’re seasoned now—you can “feel” when to hold longer.
The Options-Specific Dangers
Options amplify overconfidence because they create an illusion of control. When you sell a strangle and the stock stays between your strikes, it feels like you predicted the future. In reality, you simply got paid for taking on risk—and probability worked in your favor this time.
Consider Sarah, a trader who discovered short puts during a bull market. She sold puts on strong stocks, collected premium, and rarely faced assignment. Six months of consistent profits convinced her she’d mastered “the system.” She increased position sizes, sold closer-to-the-money strikes, and ignored her stop-loss rules.
Then the market corrected. Sarah faced multiple assignments on stocks that kept falling, turning what should have been manageable losses into portfolio-threatening disasters. Her overconfidence bias had transformed a solid strategy into a leveraged bet against volatility.
The Mechanical Trading Reality Check
The beauty of a mechanical trading approach is that it removes emotion from trading decisions. Research consistently shows that trading small, trading often, and following consistent rules beats any attempt to outsmart the market.
The numbers don’t lie: Even professional market makers, with superior technology and inside knowledge of order flow, win only about 60% of their trades. If the pros can’t do better than that, what makes retail traders think they can? Options trading guidelines exist for good reasons.
Breaking the Overconfidence Cycle
Track your win rate religiously. Keep a trading journal that shows not just your profits, but your actual percentage of winning trades. Most successful options traders win 65-70% of the time while keeping losses small. If you think you’re doing better, you’re probably lying to yourself.
Stick to mechanical rules. When you feel the urge to deviate from your tested approach, ask yourself: “Am I making this decision based on data, or because my last few trades worked out?”
Position size based on portfolio percentage, not recent success. The money you made last month doesn’t change the risk of your next trade. Risk 1-5% of your portfolio per position, regardless of how confident you feel.
Celebrate process, not profits. Instead of patting yourself on the back for making money, congratulate yourself for following your rules. The market will reward good process over time, but it can punish overconfidence in a single trade.
The Bottom Line
Overconfidence bias in options trading isn’t about being too optimistic—it’s about forgetting that every trade carries real risk, regardless of your recent track record. The market has a cruel sense of humor: it tends to deliver its harshest lessons right when we think we’ve figured it all out.
Remember the fundamental principle of successful options trading: “Stay disciplined, manage risk, follow your mechanics.” Your ego might want to swing for the fences after a few wins, but your portfolio will thank you for staying humble.
The best options traders aren’t the ones who never lose—they’re the ones who never let overconfidence turn a small loss into a big one.
Probabilities over predictions,
Andy Crowder
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It’s my free weekly newsletter that cuts through the noise with actionable strategies, volatility signals, and premium-selling opportunities. Each issue is built for traders who want to make smarter, more consistent decisions — whether you’re managing your first iron condor or building a portfolio around systematic approaches.
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