Tastylive: Most Options Traders Make at Least One of These 5 Mistakes

Traders have a number of strategies that they can use to profit from the market’s short-term swings. Typically, most traders will use options. They’re less expensive than using shares outright. And they can magnify a profit … or loss.

Understanding how to use options responsibly in a portfolio is huge for determining your trading success. And it can also be used as a tool to help boost the returns or hedge a more conventional stock portfolio.

First, when trading with options, many traders first look at the buy side. Buying options, whether puts or calls, can lead to massive returns.

However, those options have to be bought at the right time. And they have to be at the right price. Otherwise, traders risk losing on a trade. Even if they’re generally right.

To counter this challenge, traders can look at the sell side of the equation. Selling options tends to offer lower returns. But it offers a higher probability of providing investors with a gain.

Investors who want to hedge a stock portfolio can sell call options against their position. This “covered call” strategy is a conservative way that can boost returns. And it can help to mitigate some market risk. Selling options also brings in more income, which can then be used to also buy options.

To look at the full list of options trading mistakes, click here.