Compounding is one of the most common mistakes made by an options trader when they are making long-term investments. It consists of putting profits back in to the investment, so that the profits can earn profit too. This is great strategy if you are a stock trader; many people have made their fortunes through re-investing profits, but for an options trader, it is extremely risky. If you compound your profits you will also be compounding your losses, and you may end up with nothing as you are dealing in leveraged stock options.