1. Purchasing Out-Of-The-Money (OTM) Call Options

 OTM call options might have a very affordable cost. It might seem to you that you can easily make a profit on them: just purchase them when they're cheap and sell them when their price goes up. This pattern might work occasionally — but it won't help you to make money consistently. It would be reasonable to consider selling an OTM call option on a stock that you already own. By doing so, you'll resort to a covered call strategy that might help you earn funds sustainably in the long run.

 2. Misunderstanding Leverage

 Traders who're just getting started might incorrectly assess the risks that leverage involves. They tend to purchase many short-term calls. It would be wiser to master leverage using just 1% of your share lots for a test. If you succeed — then, feel free to carry on. If you can't make a profit on the test lots, you might want to discontinue using leverage.

3. Lacking An Exit Plan

Before you start trading, you should decide at which point you will stop. You should determine:

  • Upside exit point
  • Downside exit point
  • Timeframes for both types of exit

From the onset, you should learn how to balance trading with everyday life. You shouldn't stay glued to your computer 24/7. Reach your goals, have a rest and start the next trading session tomorrow. 

4. Hesitating To Test New Strategies

Once you detect a profitable strategy, you don't need to remain with it forever. To be able to make a handsome and steady income on trading options, you need to be flexible. Use some part of your assets to test new strategies and don't get upset if some of them fail to work with you.

5. Trading Illiquid Options

The term "illiquid" means the following: when you want to sell your options, you either can't find buyers for them — or you'll cause a significant price movement by selling your options. Ideally, the open interest should be equal to 40 times the number of contracts you'd like to trade or exceed this number. This means that if you're planning to sell a lot that consists of 15 items, there should be an open interest of 600 contracts or more.

6. Waiting Too Long To Buy Back Short Options

This might happen because you might strive to maximise your profit or avoid paying the commission. Instead, you should remember: if you can keep 80% or more of your initial gain from the sale of the option, it would be reasonable to buy it back.

7. Legging Into Spreads

Many novice traders tend to buy the option first and sell the second option later, which is known as "legging into a spread". By doing so, they hope to minimise risks — but in fact, they risk too much in exchange for a too-small reward. The right approach is to perceive a spread as a single trade. You shouldn't expect the market to move in your favour.

8. Lacking A Plan For The Situation When You Get An Early Assignment

When selling options, you should realise that you might be assigned before the expiration date. That's particularly important if you stick to a multi-leg strategy. You need to think in advance of what you would do after getting an early assignment. You might opt for a call or a put. Plus, you should determine whether you want to get your cash as soon as possible or later.

9. Trading On On Unreliable Platform

 Here are a few examples of how unreliable platform might turn you down:

  • Turn out to be a scam and steal your money
  • Leak your private data
  • Fail to provide you with the tools that you need for productive trading
  • Go down because of a sudden spike in traffic

To find a credible platform that caters to Australian traders, you might want to check aubinaryoptions.com. There, you'll discover an impartial list of top platforms and the criteria for choosing the best one.

Final Thoughts

Hopefully, you found this article informative and now you have a better understanding of which mistakes to avoid when making your first steps in options trading. Traders with little experience tend to buy out-of-money call options, misunderstand leverage, lack an exit plan and avoid testing new strategies. They might trade illiquid options, wait too long to buy back short options, leg into spreads and not know how to cope with an early assignment. You should strive to avoid these mistakes. Most importantly, you should trade only on a reputable and reliable platform.