This mistake can be boiled down to one piece of advice: Always be ready and willing to buy back short options early.

Far too often, traders will wait too long to buy back the options they've sold. There are a million reasons why: You don't want to pay the commission; you're betting the contract will expire worthless; you're hoping to eke just a little more profit out of the trade.

How can you trade more informed?

If your short option gets way out-of-the-money and you can buy it back to take the risk off the table profitably, do it. Don't be cheap.

For example, what if you sold a $1.00 option and it's now worth 20 cents? You wouldn't sell a 20-cent option to begin with, because it just wouldn't be worth it. Similarly, you shouldn't think it's worth it to squeeze the last few cents out of this trade.

Here's a good rule of thumb: if you can keep 80% or more of your initial gain from the sale of the option, you should consider buying it back immediately. Otherwise, it's a virtual certainty: one of these days, a short option will bite you back because you waited too long.

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