Option Trading Mistakes to Avoid - Tips on How to Improve Your Trading Approach

Options trading can offer powerful ways to profit in the market, but it also comes with many pitfalls. In this article, we’ll go over the most common option trading mistakes that traders make and how you can avoid losses using smart planning and tools like those from Option Samurai.

Key takeaways

• Some typical option trading mistakes include mismatching strategy with market outlook, picking the wrong expiration, and ignoring volatility.
• Avoiding losses in options trading means respecting risk, using probability, and not going in blind.
• Some of Option Samurai’s tools can help prevent trading mistakes by showing liquidity, IV percentile, risk metrics, and probabilities.

Your Strategy P&L Matters, But It’s Not Everything

One of the most common option trading mistakes is focusing only on the expiration graph. That’s the blue line - but it doesn’t tell the full story. Your position can have real risk today, long before expiration.

Typically, a trade profit and loss (P&L) chart on our screener will look like this:

As you can see, our tools let you track two lines:

• Blue = profit/loss at expiration
• Orange = profit/loss right now

This helps you avoid trading mistakes like holding a trade too long just to “wait for max profit,” while ignoring rising short-term risk (in fact, we often close trades well before the expiration date is reached if we’re happy with the profit). Watching both lines lets you make smarter, faster decisions - which is key for options trading and avoiding losses. Don’t wait until it’s too late to adjust.

Do Not Underestimate Expiration Dates

Picking the wrong expiration is one of the most common option trading mistakes. If you go too short, you’re racing the clock - even a solid setup can fail because the stock didn’t move fast enough. Too far out, and you’re paying extra for time you might not need.

Here’s what to ask before entering:

• How long do I expect this trade to take?
• Do I need to hold through an event like earnings?

In our screener for options, you can use the “Expiration Date” or “Days to Expiration” filters:

These tools allow you to quickly find options that match your trade logic. Both filters get you to the same place - a smarter expiration choice that helps you avoid these trading mistakes and stay focused on options trading and avoiding losses.

Keep Your Emotions Under Control

Trading without a plan leads to emotional decisions and inconsistent results. It’s one of the easiest option trading mistakes to avoid. Set clear entry, risk, and exit rules before placing a trade. Our filters and alerts help you stay consistent and focused on options trading and avoiding losses.

Make Sure You Pick the Right Strategy

A lot of option trading mistakes start with using the wrong strategy for your market view. If you think a stock will stay flat but buy a long call anyway, you’re setting yourself up for frustration. Same thing if you try a neutral iron condor in a fast-moving breakout - it just won’t work.

Here’s the fix: before placing a trade, check both direction and volatility. Is the stock trending up, down, or going sideways? Is implied volatility high or low? Each setup has strategies that fit and others that don’t.

Some quick examples:

• Long calls and debit spreads work best in bullish trends with low volatility
• Iron condors do better in high IV, sideways markets

With the help of our tools you can:

• Filter trades by market trend and expected volatility
• See which strategies fit bullish, bearish, or neutral setups

Even better, you can rely on the “Scenario” feature:

This tool lets you understand which different strategies you could use given a specific outlook (we’re adding a link to this at the bottom of the article).

Not Adjusting for Earnings or Dividends

One of the easiest option trading mistakes is forgetting that earnings or dividends can shift everything. A stock can gap, volatility can spike, and your whole position can flip. If your option expires after one of these events, you’re exposed.

We help you avoid these trading mistakes by letting you filter out trades that expire after earnings or dividends, as you can see below:

As you can see, you can easily filter out the companies that will either announce earnings or pay dividends before your options expire.

Keep Your Eyes on the Profit and Loss Probabilities

Skipping the numbers is one of the easiest option trading mistakes to make. Many traders jump into trades without checking the probability of profit or whether the risk makes sense for the reward. That’s how small losses turn into big ones.

We show you the probability of profit and breakeven points based on the standard option pricing model used across the industry:

In general, keep this in mind:

• These are not guarantees
• They don’t factor in events like earnings or news
• The model assumes a “normal” market environment

So while they’re helpful, use them as a guide, not a crystal ball. If a trade shows a 75% chance of profit, that means the math favors you - not that the trade is risk-free. Smart use of probabilities can go a long way in options trading and avoiding losses. To better interpret those numbers and make informed entries, it helps to understand how to read an option chain and spot hidden risks early.

Do Not Ignore Implied Volatility

One of the most expensive option trading mistakes is ignoring implied volatility (IV). You can be right on direction and still lose money if volatility drops after you buy. That’s because high IV inflates the option price - and when it deflates, so does your premium.

If you’re buying options in a high IV environment, you’re likely overpaying. If you’re selling in a low IV environment, you’re not collecting enough premium. That’s how good ideas turn into trading mistakes.

Here’s what to do instead:

• Use debit strategies like long calls or puts when IV is low
• Use credit strategies like the bull put spread or the bear call spread when IV is high

Our tools show IV percentile so you can see how current volatility ranks vs. the past year:

We also offer a full IV suite that helps with options trading and avoiding losses. We’re linking to that at the bottom of this article for easy access.

Don’t Forget about the Money at Risk

Going too big because you're confident or too small because you're scared are classic option trading mistakes. Oversized trades can wreck your account when they go wrong. Undersized ones won’t move the needle even when you're right.

To avoid these trading mistakes:

• Set a fixed dollar or % risk per trade
• Stick to sizes that don’t keep you up at night
• Don’t chase huge risk/reward trades without checking their actual odds

Our screener helps with this. You’ll see max loss and profit, plus a risk/reward ratio:

Keep in mind: the higher the potential reward, the lower the probability of profit. That trade-off is at the core of options trading and avoiding losses. Use it to your advantage, not against you.

Ignoring Different Scenarios

Too many option trading mistakes come from assuming one outcome. But what if the stock doesn’t move? Or moves the wrong way? You need to test more than just your “main idea.” 

Our scenario engine (mentioned above) can also be integrated in any scan. Simulate what happens if the underlying price moves up, down, check what happens if price hits a target, nears support, and so on. Here is an example of what you can do on every scan:

As you see, you can add multiple scenarios (the blue labels on the P&L chart correspond to each of the simulations you are running). This is how professionals trade: they never enter a position just for the sake of putting their money in the options market, they plan and simulate what would happen in different scenarios. If you’re still weighing whether options are right for you, this breakdown of options trading vs day trading can help clarify the strengths and limitations of each style.

Read More

Scenario engine

Implied volatility suite