While it can be therapeutic to realize other people have lost more money than you have (so much more), it’s also beneficial to remind yourself that the objective of investing is not accumulate war stories to share with strangers on the internet.

If you’ve consistently lost your shirt, there’s no need to resign yourself to what WallStreetBets politely refers to as a future trading sexual favors behind the Wendy’s dumpster. So let’s rip off the Band-Aid and be real for a minute. If you are consistently losing money, you need to stop doing these things.

Buying leap options on hyped up growth companies

All this does is guarantee you lose your collateral a year or two from now. If the little voice in your head starts telling you about the time value of money and how the loss won’t be so bad because you can take it as a tax deduction, you’re probably already in pretty deep and need to consider taking a small or medium sized loss before it turns into a big loss.

It’s best to close these positions out and try to either net them to zero or eat a loss if you have to. Remember, a 50% loss is better than a 100% loss. It can be hard to know when to take a loss on a trade, but it gets easier with experience.

I am not saying you shouldn’t have a few risky growth stocks in your portfolio – I do too – but you cannot afford to have nothing but risky growth stocks with great PR and no revenue in your portfolio!

Having spreads be the majority of your option positions

Selling spreads is alluring because of the relatively low collateral required to make great returns. However, it’s a fairly risky play and one bad spread can wipe out your profits from 10 good spreads. You really really need to know what you’re doing before dabbling in spreads. I actually don’t even consider them to be a proper investments, but rather, more in the arena of raw speculation. This is because if you sell a call credit spread, and the underlying security blows through your strikes, you’ve basically lost your collateral. It may only be $100 or $500 or $1,000, but this can decimate a small account, and fast.

Instead of selling spreads, especially starting out, stick with puts. The returns won’t be as high, but if things go wrong on a put, the worst that can happen is you get exercised and are forced to buy 100 shares of the underlying security. You can then turn around and sell covered calls on those shares. You can even roll the put out a couple of weeks or even sixty days if your overall thesis on that position hasn’t changed, probably collecting a bit more premium on the way. Focus on generating cash flow this way as opposed to selling spreads.

Put credit spreads and call credit spreads have indeed created many-a bag-holder on WallStreetBets. That’s why you should only use spreads sparingly. For example, if you have five covered calls and five puts, maybe you can consider one spread, since your premium income is somewhat more diversified. In this scenario, if the spread blows up on you, it’s possible your net cash flow position for the month is still positive.

If you have a small portfolio and the majority of your positions are spreads, a sudden increase in volatility can potentially wipe you out. If this is you, consider taking any profits you can and closing the rest for either a zero-return or possibly even a small loss depending on you potential risk exposure.

Buying shot-in-the-dark growth companies so you can sell covered calls

Covered calls are a safer strategy, and one of my favorites. However, if you have a small portfolio, it may be tempting to buy 100 shares of a cheap stock simply to sell covered calls and generate a $10 or $20 a week. Resist the urge to YOLO your money in this way because you’ll end up with your tail between your legs crying “woe is me” on WallStreetBets. Sure, calls can help you reduce your basis in that lousy stock, but it’s still a lousy stock, and if it goes to zero, you’ll be caught in a vicious cycle of rolling down your strike prices on those calls you sold until you wake up one morning and find yourself disoriented behind the Wendy’s dumpster.

Final thoughts

Remember, it’s a lot harder to make money in a bear market. Your goal should be capital preservation. Hold on to your high quality stocks and slowly chip away at your basis in those stocks by selling medium-risk options (.35 deltas) two weeks to 45 days out. Leave some powder dry so you’re ready to sell puts or buy up stocks when you see things bottoming out.

You don’t have to be an economist to try to time the market, because the truth is, no one knows when stocks will rise or fall. Warren Buffet famously says that he doesn’t try to time the market, but common sense will tell you when a good time to buy might be and when you would be better advised to allocate some of your precious capital to the ol’ sock drawer.

Option trading isn’t some scammy “get rich quick” scheme. It requires the investor to build discipline into their trading strategy. Do that, and you’ll be able to generate impressive returns and compound them over the years. In the meantime, if you’re new and you’ve lost some money, don’t let it get you down. Consider any early losses as tuition to learn what not to do. Sometimes, the best way to learn is by making mistakes – just make sure your mistakes are small and infrequent!