No-no #1) Not doing your homework. The only way to make money in the market (I should add consistently) is doing your homework, and doing it better than 80% of the rest of the schlubs out there. And this is key. Forgetting say, fundamental analysis, might lead to something catastrophic. If you ever go long and buy a stock, you want it to be a profitable company--not a looser sitting in their mother's basement.
No-no #2) Failing to manage the trade. Covered calls are a simple to manage--not like herding a flock of pre-schoolers down El Camino Real. But, you do need to watch it. A covered call will give you some down side protection, but does not eliminate risk. Stocks can still go to zero! Make sure you have a mental stop set up for the trade. The short call can give you downside protection of up to 11% or thereabouts, but it is no long Put.
No-no #3) Trading the wrong strategy. Don't do what I did, and trade covered calls on LEH right before they announce their first losses ever. Catastrophic. If I wasn't sure which direction that was going, but knew that whichever way it was going was going to be the bootleggers car of them all.... I would have Straddled or Strangled long. (As a beginning options trader that was not available to me, and instead of staying out, I did the No-no). A stradle would have captured this and made me a lot of money, but I digress.
No-no #4) Writing calls with too much time. As a buyer you want time on your side, so buy way out, buy LEAPs if you want. But as a seller, too much time can hurt you. Don't sell a call 6 months out, the premium may seem bigger, but in actuality you are going to make more money selling calls 1 to 2 months out from expiration than any other. Watch time drop like a led balloon.
(Time Decay of Options)
Trade right and returns will come.
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