There are a couple of key factors to keep in mind when dealing with the limited life of options. The first key factor is the understanding that an option's value depends on the ability to correctly predict both the direction and timing of a move in the price of the underlying stock. The first variable, direction , is easily understood. If the expectation is that the underlying stock price will go up but instead it goes down, the investor loses money. The second key variable in options trading is the timing of the direction.
Dividends are another key difference between stock and option trading.
Dividends do not represent a change in value to the holder of a stock, because the stock price moves down approximately the same value as the dividend paid to the shareholder. This is not true in options. An option does not give the holder the right to receive a dividend. Thus, when a dividend is paid and the stock subsequently falls, an option holder bears the full brunt of the dividend paid. While this is a negative characteristic for a holder of a call option, the holder of a put option, who is betting the stock will go down anyway, actually gains from this occurrence.