Why Do Option Traders Lose Money?
BestStockStrategy.com – Options Trading with David Jaffee
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Why Do Option Traders Lose Money?

Why option traders lose money.

I believe that the primary reason why option traders lose money is that they trade too large and they also don't take into account how volatility expansion affects their account.

If you go back to March 2020, even though the market fell 36% in 33 days, and then had a V-shaped bottom, and then hit a new high just a few months later, a lot of people lost money because of the sequence risk and were forced to close out their positions at the most inopportune time.

Unfortunately what happens is that when you win over 90%+ of your trades you get lulled into a false sense of security and then when the market pulls back and the VIX spikes up from 15 to 35 to 40 and you also have a lot of sequence and correlation risk then oftentimes what happens is that people simply run out of buying power and are forced to close out their positions at the most inopportune time.

It takes a tremendous amount of experience and also a tremendous amount of discipline to make sure that you are not trading too large because if you are trading too large then unfortunately you can get closed out of your positions at the worst time and then even if the underlying stock rebounds you're not going to be able to participate because you no longer have that position.

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This is by far one of the biggest reasons why options traders will lose money they will become too complacent and overconfident they'll trade too large and they will end up losing money during a large pullback or a large volatility expansion event so one of the best things that you can do is to either trade spreads or trade a few naked positions where even in the worst case scenario if you had to take ownership and get assigned that position then you're completely okay with getting assigned and participating in the upside of the stock.

Selling premium can make you rich, but only if you do it the right way.

Learn the most successful options trading strategies.

David Jaffee with beststockstrategy.com please let me know your thoughts below on why you think some option traders, or option sellers, end up losing money.

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Conclusion (Why Do Options Traders Lose Money?)

It almost always comes down to size. 

Option traders trade too large and end up running out of buying power.

Be more disciplined, and you'll likely achieve better results.

Frequently Asked Questions (FAQs)

Why do option traders lose money?

Option traders lose money because they usually trade too large or engage in low probability trades.

Option buyers lose money because the expected profit of each trade is negative.

Option traders (option sellers) lose money when the expected move is less than the actual move and they run out of buying power.

How can option traders make money?

Sell OTM options on stocks that you want to own and have enough buying power to take ownerships of the underlying security if necessary.

Who provides the best options trading education?

David Jaffee from BestStockStrategy provides the best options trading materials.

About the Author David Jaffee

I (David Jaffee) help people become consistently profitable traders while minimizing risk. I graduated from an Ivy League University and worked at some of Wall Street's most successful investment banks. Subscribe to my YouTube channel for valuable videos - BestStockStrategy YouTube Channel‚Äč. Finally, if you're looking to Land a Finance Job, then I've put together the best step-by-step course at LandaFinanceJob.com. My personal website is DavidJaffee.com.

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