Options Expiries are the most important days for options traders. Most of the expert options trades make huge money on weekly and monthly expires. However, it is also the day when most newbies lose a lot of money by taking the wrong options traders. In this article, we’ll look into seven of the common mistakes newbie options traders make on expiry day. Keep reading to find out!!
7 Mistakes Newbie Options traders make on Expiry Day!
Here are the seven mistakes newbie options traders make on expiry day that they should try to avoid to reduce the losses while trading in options:
1) Choosing the wrong Strike Price
Many newbie trades buy extreme OTM call/put positions on expiry just because their premiums are cheaper. However, the decay is also fast on the day of the expiry and the Out of the Money (OTM) contracts will become worthless at the end of that trading day. It would be advisable to trade in ITM or ATM strike prices on expiry days for options buying.
2) Poor Risk Management
Just because the premiums are lower on the expiry day, Say Rs 40/50, newbie investors tend to buy high lot sizes of contracts in the hope to make higher profits. However, the risk involved in also higher with bigger lot sizes.
3) Zero to Hero Trades
Many Options trading Channels/Telegram channels glorify on how an option of Rs 30 becomes Rs 300 at the day of expiry. However, for beginners to spot and make a profit from such trades is very rare.
A big mistake here is that many newbies tend to use high capital for Zero to Hero trades, which can turn out to be a very unprofitable approach as such trades can also become Zero on the day of expiry. Use only a small portion of profits on Zero to Hero trades
4) Gut-Based Trading
Options traders tend to make a lot of money on Expiry days if their views are correct. However, most experienced trades know when to cut their losses if the trades are not going as planned or according to their setup.
However, many beginners take gut-based trades on expiry day, hold to the wrong positions even when they are going against what’s planned, and eventually turn up to be Zero. Avoid gut-based trading and use a proper approach.
5) Revenge Trading
When it’s not your day, no matter how good a trader you’re, you won’t make money on that day because your psychology gets affected. Experienced trades understand this, however, for newbies, it’s very difficult to accept how they lost money, especially on the day of expiry. They start over-trading or revenge trading, which eventually turns out into even bigger losses.
6) Lack of Patience
On the day of expiry, if you have implemented any strategies like straddle or strangle, it can give you returns. However, you’ll require patience and it is not essential that the strategy will give you result in 15 mins or so. Many beginners tend to lose patience on the day of expiry. Buyers tend to be afraid of the decay and sellers tend to become afraid of the volatility. However, to win the game, traders need to stay in the game.
7) Options Buying vs selling
If the market is directional, buying can make good profits and if the expiry is range bound, selling can be highly profitable. Traders need to identify the market and choose their strategy accordingly. You cannot make profits on expiry using the same strategies all the time and you have to pick between buying and selling.
Bonus: Trying to make big profits on all expiry
In a month, Options traders get 4 weekly expiries and it is not necessary that they will make huge profits on each expiry.
However, many newbies get to be extremely serious on expiry days as if they will not get another chance. Nonetheless, it is not true. The market will open next week, next month, next year, and so on. All you need is to learn the skills and the market will reward you in future expiries.
If you want to learn how to trade options on expiry, you can join us at an exclusive seminar in Bangalore on 14th May’2023. Here’s the link to register for the seminar: https://joinfingrad.com/options-trading-seminar-bangalore
That’s all for this article on seven of the common mistakes newbie options traders make on expiry day. Happy trading!!