Options trading is one of the most exciting and flexible investment strategies available in the stock market. It provides traders with multiple ways of generating profits, hedging risks, and testing strategies with limited capital. But as attractive as it sounds, many beginners commit costly errors that could drain their accounts quickly. Whether you are just exploring what are options or already experimenting with your first call and put options, avoiding these common mistakes could save you both money and frustration.
In this detailed guide, we’ll cover the biggest mistakes people make in options trading for beginners and share practical solutions based on real experience, market-tested strategies, and expert-level insights.
Understanding Options Before Trading
Before jumping into mistakes, let’s set the basics straight.
So, what are options?
Options are financial contracts that give traders the right, but not the obligation, to buy or sell an asset (like a stock) at a predetermined price, within a set time frame. There are two kinds:
- Call options – Give the right to buy at a particular strike price.
- Put options – Give the right to sell at a particular strike price.
When beginners start with stock options without fully grasping this, they often assume it works the same way as buying regular shares — a mistake that can be very expensive.
Mistake 1: Trading Without Learning the Basics
One of the earliest blunders is jumping into live trades without really knowing how to trade options. Many beginners skip any structured options trading tutorial and rely purely on social media tips or Telegram groups.
I have personally seen traders wipe out ₹20,000 in a week by blindly following so‑called “jackpot calls.” The market is unforgiving to ignorance.
How to Avoid It:
- Take a proper options trading tutorial (many brokers also offer free modules).
- Practice in a demo account before risking real money.
- Read about strategies like covered calls, spreads, or straddles.
Even at Investogainer Research, we stress strongly on investor education because trading without context is like sitting in a speeding car without brakes.
Mistake 2: Ignoring Risk Management
Options are leveraged instruments, meaning a small price change in the stock can significantly impact option premiums. Beginners often overtrade, risking their full capital on single bets.
For example, one of my early students spent his whole ₹1 lakh portfolio on weekly Bank Nifty options. Guess what? The market moved just 100 points against his trade, and he lost nearly 70% of it in a single day.
How to Avoid It:
- Never risk more than 2–3% of capital per trade.
- Always set Stoploss. A trade without stoploss is gambling.
- Choose longer expiry contracts instead of weekly-forced trades (especially for new traders).
At Investogainer Research, instructions like clear Entry, Exit, and Stoploss levels are a crucial part of every recommendation—saving traders from such avoidable disasters.
Mistake 3: Misunderstanding Time Decay
Another overlooked concept in options trading for beginners is Theta, also known as time decay. Every day that passes, an out‑of‑the‑money option loses value if stock movement doesn’t favour you.
For instance, if you buy a call option on Reliance at ₹20 premium with just two days before expiry, even if Reliance goes up slightly, your option might still lose value. Beginners often fail to realize this and hold on until expiry, eventually ending up with a worthless option.
How to Avoid It:
- Avoid buying options too close to expiry unless you understand intraday scalping.
- Go for contracts with more than 2 weeks left if the direction is your main focus.
- Track Greeks regularly. Even basic knowledge of Delta and Theta can save you.
Mistake 4: Treating It Like Monopoly Money
When newcomers discover the low cost of stock options, they get carried away. Buying a single futures lot might require ₹1.5 lakhs margin, but an option contract can be entered with ₹2,000–₹5,000. That affordability tempts beginners to over-leverage without measuring consequences.
I once met a trader who bought 400 PE contracts of a stock because he thought, “It’s just ₹5!” But 400 x ₹5 = ₹2,000 could expire worthless in a day — which it did.
How to Avoid It:
- Don’t buy contracts just because they look “cheap.” Check open interest, liquidity, and actual strategy.
- Position sizing is crucial. Never take too many contracts in one trade.
- Keep emotions aside. Treat small trades with the same discipline as large ones.
Mistake 5: Following Market Rumours
Options attract retail traders because they move faster. But many beginners rely on “tips” from friends, social media groups, or WhatsApp forwards. 90% of such tips are late entries or pure speculation.
How to Avoid It:
- Always validate setups with your own analysis (technical or fundamental).
- Verify whether the underlying stock has news/events before buying contracts.
- Use tools like option chain analysis from NSE for clarity.
This is where platforms like Investogainer Research step in. By providing real-time alerts on WhatsApp and Telegram, they help traders avoid rumour-based traps and instead focus on verified research.
Mistake 6: Holding on to Losing Trades
Greed and fear ruin more traders than lack of technical knowledge. Many beginners think, “It will come back, let me hold this losing call option till expiry.” But options are wasting assets, meaning value keeps eroding with time.
I’ve seen traders lose 100% of premium capital just because they couldn’t accept small losses early.
How to Avoid It:
- If your stoploss hits, exit immediately. No second thoughts.
- Accept that not every trade will be a winner.
- Use a pre-written trading plan that states: “Exit if premium falls 40%.”
Mistake 7: Overtrading and Emotional Decisions
After the first few wins, many beginners start to believe they’ve cracked the code. Overconfidence kicks in and leads to overtrading, often wiping out profits in a single day.
How to Avoid It:
- Set a limit of 2–3 trades per day.
- Follow your journal strictly. Write down why you entered a trade and what you expected.
- Never chase the market. If you missed entry, there will always be another opportunity.
Mistake 8: Not Considering Volatility
Volatility (VIX) decides the premium pricing. Beginners often ignore implied volatility and end up paying too high a value for contracts right before events like budget announcements or quarterly results.
For example, buying call and put options both before results (straddle) can be profitable only if volatility remains elevated. But if volatility drops suddenly, both options lose value—even if movement happens.
How to Avoid It:
- Learn to read volatility charts. NSE India provides free tools.
- Avoid buying options when IV is already very high.
- If IV is high, focus on selling strategies instead (spreads or covered calls).
Mistake 9: No Diversification in Strategy
Most newcomers stick to only buying calls or puts. But professional traders diversify with spreads, iron condors, butterflies, and more. Limiting yourself to a single type of trade exposes you to unnecessary risks.
How to Avoid It:
- Learn multiple strategies before committing full capital.
- Use spreads when the move expected is limited.
- Sell options only when you understand margin and risk fully.
Mistake 10: Lack of Patience and Over-Expectations
Options trading is often marketed as a “Get Rich Quick” scheme. Unfortunately, too many new traders believe they can double their money every week. Impatience makes them jump into random trades.
Reality: Professional traders aim for consistent small gains, not jackpots.
How to Avoid It:
- Have realistic expectations (15–20% annually is already excellent).
- Patience is power. Not trading is also a strategy.
- Focus on building skill, not chasing profits.
Practical Wisdom for Beginners
Learning how to trade options requires patience, discipline, and consistent practice. Even after 12 years of trading, I still journal every trade and learn from mistakes—because markets evolve.
As Investogainer Research emphasizes, transparency and discipline are the backbone of successful trading. There are no shortcuts. The market rewards awareness, patience, and research, not excitement-driven decisions.
Conclusion:
The journey of options trading for beginners is full of lessons, risks, and opportunities. Mistakes are inevitable but repeating them is not. Understand risk management, respect volatility, and never forget that options are wasting assets with an expiry date.
For anyone starting fresh: focus on education first, paper trading second, and live trading third. And if you value structured support, services like Investogainer Research can provide disciplined entry and exit strategies, helping you avoid the classic traps that beginners fall into.
The key takeaway? Options trading is not gambling — it’s a structured financial discipline. Approach it with respect, patience, and learning, and the results will follow.
Also Read: Why Choosing a SEBI-Registered Research Analyst is Your First Step to Safe Investing
