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10 lessons I learned from trading options

Updated: Dec 25, 2022



If I understood these when I started trading, I would have been successful faster with less mental and financial pain.


1. All options are overpriced! Options have time and volatility added to the price of the call or put. The further out in time and the more uncertain the future seems, the more expensive the option is. Although this might sound like a negative, it doesn’t have to be. It’s important to realize and accept this truth.


2. I sell more options than I buy. I like to sell overpriced products more than I like to buy overpriced products. If I want to own a product at its current price, I love buying it at a discount. The opposite of this is also true! If I’m looking to sell something at a certain price, I’m going to be ecstatic to sell it for more than I expected.


3. Do not trade illiquid options! A tight bid ask spread, high volume, and good open interest are required for options trading.


4. Risk a consistent amount of dollars for all trades. If a trade is too big don’t take it! Big bets rarely pay off. Chasing premium that seems too high or making bets that aren’t sized appropriately to your account normally do not end well. In my experience the cumulative losses of the big trades or long shot bets aren’t covered by the infrequent but large wins.


5. There is no holy grail and there is not a perfect system. So many people are trying to sell or convince you they have the found an edge and that they have the perfect trade strategy. These people are trying to sell you on a plan that may or may not work for a while. The only thing for certain is they will gladly take your hard-earned cash and they will make profits by selling you their system, not necessary by trading their system.


6. It’s ok to be wrong in trading, it’s not ok to stay wrong. You are going to make plenty of bad trades, and you will be wrong a lot. The stock market and the options market are going to humble you if you think you are smarter than everyone else. It’s important to cut your losses before they get out of control. Lose small, take your winners, and you will be successful over time. Do not let your ego or “what ifs” keep you from managing a loss while it is small.


7. Everything works… Just not all the time. A strategy might work for a few days, a few months or even a few years. It’s important to consider macro factors and the optimal market conditions for your strategy. If you don’t believe in your strategy, you are likely to exit at the exact worst possible moment. It’s much easier to trade a strategy where you totally understand how it works. Learn and practice a strategy before you trade. Not many things are going to work in every single market condition. Keep notes of what works and what doesn’t.


8. Have a plan, keep it simple, be mechanical. Simple plans with clearly defined rules are easy to follow. If a rule says you should do something, follow the rules! You did the thinking when you wrote your plan. When the trade is on, be a machine and execute the plan. After 10-15 trades, assess the results and adjust the plan accordingly. Don’t FOMO or chase trades, don’t pick up and drop strategies every other day. There is something so simple, yet powerful about simple trading plans.


9. Emotions and revenge trading will blow up your account. The stock market doesn’t care about you. It doesn’t know who you are and it can care less if you lose every dime you have. Afterall, someone on the other side of the trade won from your loss and is happier for it. Do not get caught up in a game of emotions where you think you should double down or “get your money back”. This will end badly 8 (or 9) times of out 10.


10. The stock market will be open tomorrow. In fact, it will also be open next week, next month, and next year. Do not force a trade or look for trades because you are bored. If you are having a bad day, do not trade! Remember, you don’t have to trade every day to be a profitable trader.


Bonus Tip: Trading in a community of likeminded people is far more fun, educational, and profitable! The entire GKT community is glad you are here. Do not be afraid to ask questions, make suggestions, and exchange ideas. If you have concerns or want to chat, feel free to contact me directly through Discord’s Direct Message, or via email justin@goodkidstrading.com

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