I plan to start trading in options on stocks and indexes? Are there are some things I should avoid as an options trader?

Here are some common mistakes that traders make while trading in options. These are best avoided.

· Buying deep out of the money (OTM) options is quite common among retail investors. They buy a deep out of the money call or put just because it is very affordable. That is a bad idea. Such options are cheap because that is what they are worth. They only have time value and will most likely expire worthless.

· Holding options too close to expiry is a basic reason why traders in options tend to lose money. Any option has two components viz. time value and intrinsic value. When the call or put option is out of the money then it is very likely to expire worthless at zero. Time works against the buyer of the option.

· Don’t creating multi-layered complex options strategies but try to keep it as simple as possible. Complex strategies with multiple layers of calls and puts both on the long side and the short side can be cumbersome. You are not too sure whether you are net long or net short. Each leg of your option trade has to be closed and you have transaction costs and statutory costs for each leg. A simple trade works a lot better and is also more effective.