To help make sure this portfolio is as successful as possible, we need to lay out a few ground rules. Most of these were born out of my own (expensive) mistakes, the rest are lessons taken from various other sources.

1. No lottery tickets. A common pitfall for new options traders is buying far OTM options hoping for a huge payday, or buying extremely expensive options leading into earnings hoping for a big beat. I started out doing this and learned this lesson the hard way.
2. No chasing bad trades. If we put on a spread and the underlying goes against us too quickly to defend, we will close the spread instead of rolling and widening the spread to try and chase the win. This has been my biggest options trading mistake by far!
3. Only trade liquid products. Poor spreads ensure an automatic loss as soon as we enter the trade and no guarantee we’ll get out at a fair price. There’s so many liquid products out there that there’s no reason to throw money away chasing illiquid products
4. No opinion on direction. If you’re an expert technician and can call tops and bottoms like a pro, you don’t need my advice. I’m not, and every time I have a directional opinion I’m proven wrong. We will trade volatility instead.
5. Don’t become overleveraged. This is sometimes challenging with smaller accounts, but taking on too many positions and becoming overleveraged can result in your account becoming hog-tied — that is, your account value dips below $2,000 and into a liquidation only status. I don’t have a hard number of percent capital tied up but it’s something I want to keep a sharp eye on.

That’s it for now. Perhaps we’ll add more later.