Every trader on the planet has committed their fair share of mistakes. And why shouldn’t they? Anytime emotionally driven creatures enter a playground as supercharged with uncertainty as the financial markets, mistakes are bound to emerge.

But not all mistakes are created equal. Some are quite egregious and surefire money-losers, while others are minor mishaps unlikely to threaten your financial survival.

Let’s take a look at three mistakes that well-intentioned, yet slightly misguided option rookies frequently commit.

Buying Short-Term Options

If you were to poll 100 traders on their forecasting prowess, most would overestimate. Whether it’s due to ego or wishful thinking, stocks usually don’t move as far or as fast as many traders guess. Reason would tell you that traders ought to err on the side of caution by allowing ample time for the expected price move to materialize. Unfortunately, many fail to heed this reasoning and buy options with insufficient time remaining until expiration.

Many times a stock that appeared poised to take flight gets stuck on the tarmac by unexpected delays. Unless your timing is impeccable, buying options with a few days or weeks to expiration will not pay out. So, do yourself a favor and buy more time. A good rule of thumb is to buy twice as much time as you think you’ll need.

Buying Far-out-of-the-Money Options

One of the more alluring characteristics of option contracts frequently trumpeted by derivative advocates is their price. Compared to the amount of cash required to purchase 100 shares of stock, option contracts appear downright cheap. What’s more, each option series offers a plethora of strikes with varying prices to choose from. Often in an attempt to keep costs low, rookie traders will purchase far out-of-the-money options. They reason these options are less risky since the maximum loss is small.

Sadly this type of rationale is misleading. Though the amount of dollars at risk might be small, the probability of incurring the maximum loss is quite large. Far-out-of-the-money options represent a low probability bet, a lotto ticket of sorts. While they may pay out big when Lady Luck comes to visit, the reality is she doesn’t come around very often. Most of the time these out-of-the-money options are a losing proposition.

In the long-run buying in-the-money options for directional bets is the smarter approach.

Buying Back Short Options as Soon as They Move in-the-Money to Avoid Early Assignment

This particular mistake arises from unfounded fears that the assignment boogeyman is lurking around every corner. When traders sell covered calls, for instance, they often look to buy back the short call as soon as it moves in-the-money to avoid early assignment.

For starters, someone who is short an option won’t be assigned early if there’s still time value remaining in the option. Early assignment is a much rarer occurrence than many think and is easily avoidable, provided you monitor the amount of time value.

If the call moves in-the-money AND there’s little to no time value remaining, then go ahead and close the short option. Otherwise, you might as well remain in the position to accumulate additional profits due to time decay. Rest assured, you won’t be assigned early in this situation.