TSLA
Tesla
-- 355.840 NVDA
NVIDIA
-- 138.850 BABA
Alibaba
-- 124.730 INTC
Intel
-- 23.600 NBIS
NEBIUS
-- 44.490 
Why Do You Make Money in Paper Trading but Lose When You Enter the Market? Here's the Answer!
Many beginners start trading options with paper trading, and I was no exception.
When I was paper trading, I made 7x returns on stocks like $NVIDIA (NVDA.US)$ and $Tesla (TSLA.US)$ . But once I enter the market, breaking even felt like a blessing. It's not uncommon to make money one second and lose it the next. ![]()
So, why is it that you can make huge gains in simulated trading, but things fall apart once you go live? What's the issue?
After reflecting on this, I identified three key reasons that might help you out.
1. Remember: The money isn't real, but the knowledge is
When I started paper trading, it seemed too easy to make money. I opened positions in 10+ options at once, and despite 7 of them losing, 3 made enough money for my account to stay profitable. I felt super confident and started trading with real money.
The truth is, most of the money made in paper trading comes down to luck.
Looking at my options picks, only 3 made money, which shows that I initially chose the wrong direction, strike price, or even the wrong timing for entry.
But in paper trading, you can open as many new positions as you want, which spreads out the risk of making bad choices.
How should you pick options? Try treating paper trades like they're real trades:
Buyer or seller? Options trading is a zero-sum game—someone's gain is someone else's loss. Here's a formula to help:
Buyer profit * probability of profit = Seller loss * probability of loss
Buyer loss * probability of loss = Seller profit * probability of profit
We know that buyers can make several times their investment, so for the market to balance out, the buyer's probability of winning must be low.
Buyer loss * probability of loss = Seller profit * probability of profit
We know that buyers can make several times their investment, so for the market to balance out, the buyer's probability of winning must be low.
Sellers, on the other hand, can only make up to their initial investment, so their probability of making a profit is much higher.
Therefore, from a probability standpoint, selling options is more advantageous.
However, selling comes with big risks—you could lose everything in one bad trade. You need enough capital to recover from a blowout. If you're not confident in your skills or don't have much capital, it's better to stick with buying options.
In-the-money (ITM) or out-of-the-money (OTM)?
Honestly, whether you're ITM or OTM isn't that important, because these statuses can change over time.
What's really important is whether the option can make money before you're ready to sell.
It's like dating—how someone looks right now may not matter, as appearances change over time. What's more important is whether there's long-term potential, and if it can turn into a "profitable" relationship.
How do you judge an option's potential?
Implied Volatility (IV): IV is like the engine of an option. It has a stable reference point called historical volatility (HV). If IV is lower than HV, it means the engine is in good shape and could explode with power any time, like Nvidia options recently. If IV is way above HV, the engine is overloaded and could crash at any moment—like Nvidia after its earnings, where IV plummeted.
Expiration date: This is straightforward—options need a margin for error. Weekly options are like middle-aged people—one mistake could ruin everything. Monthly options are like young people—they've got more room to recover. If I buy an option worth over $1,000 with a time decay of only $10 a day, I can afford to hold it for several days or even over a week.
The longer the expiration, the higher the margin for error.
2. Never underestimate position management!
In paper trading, since it's not real money, you tend to go all-in or open random positions, which makes it easy to overlook position management!
In paper trading, since it's not real money, you tend to go all-in or open random positions, which makes it easy to overlook position management!
However, for high-risk investments like options, position management is extremely important! In a bull market, mistakes in position sizing may be masked, but when the market is flat or dropping, holding large option positions can be a nightmare.
How much is a reasonable position size?
Look at it from two angles:
Overall portfolio: Options shouldn't account for more than 20% of your total holdings. An experienced investor once shared his strategy: 70% in dividend stocks, 20% in growth stocks, and 10% in options. If the options portion takes a hit, he'd reinvest the dividends to buy more options. In other words, only use profits to buy options. Any gains are a pleasant surprise, and if you lose it all, it won’t affect your principal.
Individual option size: How many options should you buy? Use leverage as a guide. The higher the leverage, the smaller the position should be from a risk management standpoint. If the position is small enough, you can absorb a loss, and if it rises, you could make a fortune.
Two key principles: the deeper in-the-money, the lower the leverage, and the smaller the leverage, the larger the position can be.
3. Some mistakes you only learn by making them yourself
Does having all the knowledge prevent you from losing money? Absolutely not! Each time you enter the market, it’s a new experience.
Does having all the knowledge prevent you from losing money? Absolutely not! Each time you enter the market, it’s a new experience.
Here are two lessons I learned the hard way:
Don’t buy options with low Vega!
If the Vega is low, you might as well buy the underlying stock. As an options buyer, you make money primarily from two things: stock price increases and implied volatility (IV) rises.
When the stock price goes up, the gains are multiplied by Delta. For example, if the stock rises by 10, and Delta is 0.5, the option rises by $5. When IV increases, the profit is multiplied by Vega. For example, if IV increases by 30% and Vega is 0.04, the option price rises by $1.20.
Sometimes a stock rises 20%, but an option could go up 10x, mainly because IV has boosted the price.
If an option has a low Vega, no matter how much IV rises, the option price barely moves. For example, if a
$Faraday Future Intelligent Electric Inc. (FFIE.US)$ option has a Vega of 0.0003, even a 100% IV increase would only raise the option price by 0.03. One night, I opened an FFIE option—Vega was super low, Delta was under 1, and the option barely moved compared to the stock. The stock doubled, and the option only doubled as well. A total waste.![]()
So, if an option has a low Vega, you're losing the opportunity for huge returns, and it’s better to buy the stock with less risk.
Pay attention to macroeconomic data and financial events!
Events like CPI data, FOMC meetings, and Powell’s speeches cause market fluctuations. If you're not careful, you could get hit from both sides in options trading.
Here's my approach for trading on event days:
First, look at the news and info about the underlying asset for that day, gauge the trend, and set your strike price and direction.
Second, assess recent financial data and media reports to estimate how the event will affect the market.
Finally, consider the event's timing and market opening hours to determine the best time to enter the trade.
Second, assess recent financial data and media reports to estimate how the event will affect the market.
Finally, consider the event's timing and market opening hours to determine the best time to enter the trade.
These are just a few lessons I’ve learned from trading options. There’s still so much more to discover.![]()
If you find anything questionable, feel free to discuss it in the comments!
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Boris Johnson : human psychological weakness is the culprit. that's why to be professional or near to the level at basic trading, one must train himself first.
福贵吉祥 知足常乐 : There is a reason why u can earn money on paper trading for options. It just need to touch the price and the deal will be done. But in actual trading, this can be difficult as it need sufficient bid volume. Moreover in paper trading, the money is just a figure. You dare to buy any stock at any price. But in reality, your own money, you worry about it.
KSOL : thanks for sharing! I find it insightful.
how long have u been trading? same time as options?
福贵吉祥 知足常乐 KSOL : I seldom trade option as I find it very risky. I prefer stock trading. GL.