I’ve gone round and round for years on whether I ever wanted to write this article. Nothing has destroyed more portfolios than trading options, so let me start off by saying probably the best decision you could ever make is to avoid them.

That being said I understand how human nature works, and if I tell you to avoid them it will just make most people want to experiment with them even more. Let’s face it the lure of quick, easy, and big money is just too tempting. And trust me your broker will love you if you start trading options. The fees they garner from options are massive compared to regular brokerage fees. Options writers will love you because most of the time they will make money off you buying what they are selling.

Trading options is like gambling, most of the time the casino wins.

However, there are a few things you can do to swing the odds a little bit more in your favor and hopefully prevent you from destroying your portfolio.

The single biggest mistake almost all option buyers make is they don’t buy enough time. Most of the time markets are consolidating. Options decay during periods of consolidation. Let’s face it if you are buying options then you are almost certainly overconfident in your ability to predict the near future in the market. You think price is about to move up or move down strongly. The problem is that if you buy front month, or near month contracts and it takes longer than you expected for the move to progress you end up losing on your trade, and with options that means a total loss if price doesn’t move beyond your strike price before expiration.

So here is a common mistake many options traders make. They expect the market to rally, or drop, so they buy a front month contract a couple of strikes out of the money and then sit back expecting to get rich within a couple of weeks. Then invariably what happens is the market waffles around for a week or two and time decay quickly shaves off 50% of your options value. Most traders when they lose 50% in a position panic and sell to prevent it from becoming a 100% loss. So it’s possible you had the correct trade, but you just didn’t give it enough time to work.