Why Good Traders Keep Throwing Money at Bad Options Trades

How "chasing losses" destroys options trading accounts, and the systematic framework to protect yours

Let me tell you about the most expensive mistake I see options traders make every single week.

It's not picking the wrong strategy. It's not entering at the wrong time. It's not even using too much leverage.

It's the inability to cut a losing trade when cutting is the only rational move left.

The "Just Give It More Time" Trap

Here's how it usually plays out:

You open an iron condor. The market moves against you. Now you're down 30% of your max loss. Then 50%. Your brain starts doing gymnastics: "I've already lost this much. If I close now, I'm locking in the loss. Maybe it'll bounce back. I just need a little more time..."

Sound familiar?

This happens when you make decisions based on money you've already lost instead of what's likely to happen next. That voice in your head telling you to hold on? It's costing you real money.

Behavioral economist Richard Thaler studied this and found something crazy: investors hold losing positions 50% longer than winning positions. We do exactly the opposite of what works.

Why Your Brain Works Against You

Your brain isn't wired for smart trading decisions. It's wired for survival. And those survival instincts? They're terrible for managing options positions.

Losses hurt way more than wins feel good. Nobel Prize winner Daniel Kahneman discovered that losing $500 hurts about 2.5 times more than making $500 feels good. That's just how human brains work. But it makes cutting losses feel awful.

You get attached to your positions. The second you enter a trade, it becomes your position. You've gotten attached to it. (Yeah, I know that sounds weird. We all do it anyway.)

Admitting you're wrong feels terrible. Nobody likes that feeling. Your brain would rather keep the trade open than deal with feeling dumb.

And here's the worst part: the more you've put into a position, time, money, mental energy, the harder it becomes to let it go. Even when the odds have completely turned against you.

Why Options Make Everything Worse

If you trade stocks, this problem hurts. If you trade options, it can blow up your account.

Time decay works against you every day. Every day that passes, theta is eating away at your position's value. Stock traders can wait for years. Options traders? You've got an expiration date. The clock is always ticking.

The math of recovery is brutal. Down 25%? You need to make 33% just to break even. Down 50%? You need to make 100%. Down 75%? You need a 300% gain.

With time decay working against you, these recoveries go from "really hard" to "basically impossible" pretty fast.

I watched a trader hold an iron condor that was 60% of max loss with only 20 days left. He kept saying, "It could still come back."

The math said no. The probabilities said no. Time decay said hell no.

He held anyway. Turned a $1,200 loss into a $2,000 loss.

How Professional Traders Think Differently

Here's what separates the pros: they don't rely on willpower to cut losses. They build systems that make the decision automatic.

The 50% Rule

Many pros automatically close any position that's down 50% of its max loss. Period. No exceptions. Position hits 50%, it gets closed.

Simple rule. Easy to follow. Saves accounts.

Time-Based Exits

Close positions at specific times, usually 21-25 days before expiration, no matter if you're winning or losing. After that point, time decay speeds up so much that the odds turn against you.

When Conditions Change

If the market conditions that made your trade look good have changed, exit. The volatility shifted. The delta moved too far. Whatever your trigger is, follow it.

Notice the pattern? You decide the rules before your money is on the line. Before emotions get involved. Before your brain starts making up stories about why this time is different.

The Fresh Eyes Test

Want to know if you're fooling yourself about a position? Try this:

Cover up your profit and loss. You can't see how much you've lost.

Now look at just the position. If someone said, "Hey, want to buy this exact position right now for this exact price?", would you do it?

If the answer is no, why are you holding it?

This removes all the history and asks the only question that matters: Is this position a good use of my money right now?

Most traders realize they're holding positions they would never choose to enter fresh. They're not trading, they're just hoping.

Why Rolling Usually Makes Things Worse

"Rolling" means closing this month's contracts and opening next month's.

Rolling feels smart. It feels like management. You haven't "officially" lost yet. You're giving your idea more time.

Reality? You're usually digging the hole deeper.

You're throwing more money at a bad idea. You usually pay more premium when you roll. You're literally investing more in an idea the market already told you is wrong.

The new position has worse odds. The risk-reward on rolled positions is typically worse than what you started with.

Your money is stuck. That capital could be in a fresh trade with good odds. Instead, it's trying to dig itself out of a hole.

Truth bomb: if your trade idea was wrong this month, giving it another month rarely fixes the core problem.

I'm not saying rolling is always wrong. But if you're rolling because you can't stand to take the loss? That's just throwing good money after bad.

Building Your System

The best way to avoid emotional mistakes is to take emotion out of the equation.

Plan Before You Enter

Before you place that order, write down exactly what will make you exit. Specific dollar loss? Percentage? Calendar date? Price level?

Make these decisions when it's not your money yet. Much easier that way.

Use Automated Orders

Bracket orders, stop losses, alerts, anything that executes your plan without requiring an emotional decision in the moment.

Review Weekly

Check positions every week. But don't focus on what you've made or lost. Ask: "What's the probability this makes money from here?"

Not "Can I get my money back?" but "Is this a good place for my money going forward?"

Big difference.

Track Your Results

Keep a simple log. When you follow your exit rules versus when you break them, write down what happens.

You'll probably discover your best returns come when you follow your system, even when it feels uncomfortable.

What Discipline Actually Gives You

When you get good at cutting losses systematically:

You keep money for better opportunities. Capital isn't trapped in dying positions.

You sleep better. You're not lying awake wondering if a trade will blow up your account.

You think more clearly. Less stress means better decisions.

Your results become predictable. The difference between a good year and a blown-up account usually comes down to two or three trades that got out of control.

Cut those losses systematically, and you remove the catastrophic risk that ends trading careers.

Start This Week

You don't need to change everything overnight.

This week: For every open position, write down specific exit criteria. Put it in writing.

Next week: Practice the Fresh Eyes Test on losing positions. Would you buy this position fresh today?

Week three: Pick one systematic exit rule. Maybe "close at 50% loss." Maybe "close 21 days before expiration." Follow it religiously.

Week four: Review your decisions. When did you follow rules? When didn't you? What happened?

Build the habits slowly. One piece at a time.

The Bottom Line

Chasing losses has destroyed more trading accounts than bad analysis, bad timing, or bad luck ever will.

Every dollar you save by cutting a loss early is a dollar for your next good trade. Every time you follow your exit rules, you're building mental habits that lead to long-term success.

The market doesn't care about your history. It doesn't care what you paid. It only cares about what's likely to happen next.

Your account balance will show whether you're making decisions based on the past or the future.

Choose the future.

Because in options trading, winners aren't the traders who are right most often. They're the traders who cut losses fast when they're wrong.

That's a skill you can learn. That's a skill worth learning.

And starting today, it's a skill you're going to practice.

Probabilities over predictions,

Andy Crowder

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Disclaimer: This is educational content only. Not investment, tax, or legal advice. Options involve risk and aren't suitable for all investors. Examples are illustrative. Real results will vary. Talk to professionals before you risk real money.