Trading options is a lot like heading to Vegas! To start with, you'll have the best results if you only use the money that you can afford to lose. Let's face it, options trading can require making decisions during the "heat of the battle," and trust me, you'll make those decisions with a much clearer head if your mortgage isn't riding on the outcome!

Start with Low-Priced Options

Start trading with low-priced options. Sounds simple, but if you buy low-priced options, you won't have to put a lot of money at risk to begin trading. In fact, the biggest error novice traders make is putting too much money into the market at one time. Far too many traders lose patience and jump on what they think is a "slam dunk" with all their money, only to watch their options waste away and money disappear. Putting all of your money down on a "sure thing" is a recipe for certain disaster. Don't fall prey to greed just like the other 90% of options traders out there.

Develop a Game Plan

What you need to do is plan before you play. Draw up a game plan that helps you spread your purchases over several months or longer—and remember to diversify over several positions and try to buy both puts and calls.

Honestly, no one really knows what the market is going to do tomorrow, and having money on both sides of the equations is a great way to hedge against sudden market reversals. Always use options to compliment the other holdings in your portfolio. A smart bet if I ever heard one!

Open an Account With a Discount Broker

After you develop a game plan, make sure you open a trading account with a discount broker. You simply won't survive the options game if you don't get a big discount on commissions. If you use a full-service broker, go ahead and ask for a big discount on commissions. Most will give you a break, but whatever you do, don't let your broker talk you into a "managed" options account.

When it comes to options trading, it's wise to heed the old poker adage of "when you have the money in the pot, trade your own cards." Now, if you think you'll need some assistance executing your trades, there are a variety of discount brokers out there who can help you out.

Don't Get Greedy! Look to Generate Income

The least risky way to trade options is to use them as a vehicle to generate income. Option novices may be surprised by that statement, but it's true. Options can be used to generate regular income, and this strategy leverages your overall risk factor.

The easiest of all option trades is to sell (write) covered calls. Any trader who owns at least 100 shares of a stock can do this. Now, the options game most people want to play first is to buy short-term calls and outs. However, before you start trading, you need to realize that this is the toughest game to win over the long run. In addition to battling the stock market and long-time pros in the options market, you'll incur exorbitant commissions and huge trading costs time after time.

Buying short-term options is similar to playing the slot machines or roulette table—you'll have fun doing it—and have a chance of hitting it big. But in the back of your head that little voice is reminding you that the odds of success are a long shot. Don't feel bad: Even the pros lose their bets buying short-term options more often than they win!

Options Should Be Traded as Part of Your Total Portfolio

Last but not least, beginning options traders need to remember that the best use of trading options is to complement your existing stock and mutual fund portfolios. I mentioned this before, and it's worth repeating. Options trading should compliment your total portfolio.

For example: If you already own a lot of technology stocks or a technology mutual fund, it's simply not the smartest move to then load up on a lot of technology-based call options. If technology stocks rally, you already have sufficient exposure in your portfolio—you don't need more of it! In fact, you would probably be better served by buying some technology-based put options. These put options will profit will if tech stocks take a sudden dive, and these profits will offset some of the losses you took in your stock and mutual fund holdings.

By picking your spots and using options to complement your other holdings, you should be able to boost your overall investment returns while also lowering your risk. Those are odds any investor should take!