Mistakes of Option Sellers

Selling options is a great way to make consistent money trading the stock market, but there are a few mistakes that many option sellers will make, especially when they have just started out. 1. Risk ManagementnnIt is really easy to forget about risk management when you are winning the majority of your trades. But you still need to consider risk management when you sell an option; otherwise you might wake up one day and find out that all of the profit you made during the last 6 months of selling options vanished in a single day. So, how do you manage your risk? Probably the best thing you can do is to lower the amount you put into an option trade. Instead of selling a bull put spread that risks half your account maybe lessen the risk to only 5%. Another thing you can do is to have a max loss level that you would get out of to limit your loss in a worst case scenario. This way you lower your loss when you are wrong. 2. Selling Without TriggersnnIt is also easy to sell options without having any clue as to why. You still need to have some sort of trigger when selling; otherwise it can affect how often you will make money on a trade, which could hurt your strategy in the long run. 3. Selling Naked CallsnnNaked calls are the most dangerous thing you can do in the stock market. A stock can go up to infinity if it wants to. So when you sell a naked call you are risking an infinite amount of money. That isn’t really a good thing. If you want to sell calls have something to back them like either another call, or the stock itself. This way if everything goes against you it is not the end of the world. For more on option selling visit http://www.stocks-simplified.com/option_selling.html For more stock tips visit http://www.stocks-simplified.com/stock_tips.html