Common Mistakes

Most of what you’ll learn about options selling comes from other people’s tuition. These six mistakes show up repeatedly — across experience levels, account sizes, and market conditions. Learning them in advance is cheaper than learning them the hard way.

Chasing Premium and FOMO

The $4.50 premium on a volatile meme stock looks better than the $0.80 on a boring blue chip. It usually is better — right up until it isn’t.

Premium is compensation for risk. When a stock offers unusually fat premiums, the market is pricing in the real possibility of a large move. That $4.50 can evaporate, and then some, if the stock drops 30% in a week. The blue chip that pays $0.80 every month adds up to $9.60 a year on a stock you’re comfortable holding. Boring compounds.

The same impulse drives FOMO — the feeling that you always need to have a position open, that sitting in cash means you’re missing out. You’re not. Patience is a strategy. The trades you don’t make when conditions aren’t right are often the ones that protect your account when everyone else is getting hurt. Some of the best options traders you’ll meet describe their edge as knowing when not to trade.

Before opening any position, ask: would I be comfortable holding this stock if the option expires worthless and I’m left with shares? If the answer is no, the premium isn’t worth it.

Selling Calls on Stocks You Don’t Want to Sell

Covered calls work best on stocks you’d be fine parting with at the strike price. When you write a call on a stock you really don’t want to sell — say, a long-held Apple position that’s tripled — you’ve introduced a conflict.

If the stock keeps running past your strike, you face a choice: buy back the call at a loss to keep the shares, or let the stock get called away and pay the taxes. Neither feels good. You either cap a gain you would have kept, or you pay to get out of a position that was working.

The fix is simple: divide your portfolio mentally into core holdings you won’t touch and income positions where you’re comfortable selling shares. Only sell calls against the income positions. Your core holdings aren’t there to generate premium.

Ignoring Earnings Dates

Stocks can gap 5–20% or more on earnings — up or down — within minutes. If you’re short a call or a put through an earnings announcement, you’re exposed to that gap whether you planned for it or not.

Check earnings dates before opening any position. Most brokers show them on the options chain. If an earnings date falls inside your expiration window, you have two options: choose an expiration before the announcement, or go in with full awareness that you’re taking on earnings risk. What you don’t want is to be surprised.

Some sellers deliberately sell into earnings for the elevated implied volatility — premiums spike before announcements and collapse after. That can be profitable, but it’s a different trade with different risks. Know which trade you’re making.

Panicking During Drawdowns

Getting assigned on a stock you wanted to own isn’t a disaster — it’s the trade working as designed. If you sold a put on a stock you’d be happy to buy at that price, assignment means you got what you said you wanted at a discount.

The mistake is panicking when the stock keeps falling after assignment. Selling the shares at a loss locks in that loss, burns the premium you collected, and puts you on the sidelines during a potential recovery. The sellers who struggle most with drawdowns are the ones who hadn’t thought through the scenario in advance.

Decide your plan before volatility happens. When you open a position, ask yourself: what do I do if this stock drops 15%? If I get assigned, do I hold or sell? What’s my actual cost basis after accounting for the premium? Having answers ready means you’re making a decision, not reacting to fear.

Not Understanding What You’re Doing

This one sounds obvious, but it’s common: people open options positions without being able to clearly explain what they’re doing and why.

Before any trade, you should be able to answer six questions without hesitation:

What is my maximum gain on this trade?
What is my maximum loss?
What does the stock need to do for me to keep the full premium?
What happens if I’m assigned?
What’s my exit plan if the trade goes against me?
Why this stock, this strike, this expiration — and not something else?

If any of those answers are fuzzy, the trade isn’t ready. Education comes before positions, not alongside them.

Treating Every Stock the Same and No Record-Keeping

Not all optionable stocks are equal. Liquidity matters — wide bid-ask spreads on thinly traded options eat into your returns before the trade even starts. Dividends matter — call sellers can get early-assigned on dividend-paying stocks before the ex-dividend date. Historical versus implied volatility matters — a stock with a high IV rank might be rich for premium selling, or it might be pricing in a real event risk you’re not aware of. Company quality matters — selling puts on a deteriorating business because the premium is high is a different risk than selling puts on a fundamentally sound company that’s temporarily out of favor.

Track every trade you make: the stock, the strike, the expiration, the premium collected, the outcome, and your actual return after commissions. After a year of honest record-keeping, the data will tell you more than any article. You’ll see which stocks consistently work for you, which strategies fit your temperament, and — critically — what your actual returns are. Most people who wing it can’t tell you their real options income after two years of trading.

For position sizing and allocation guidance, see Managing Positions.

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