StockFetcher Forums · General Discussion · Position Sizing with Options<< >>Post Follow-up
msg #87077
Ignore einok
1/26/2010 6:10:13 PM

Just wondering how you all position size, handle stops, add to your positions, etc.

Here is an example I was thinking about:

Account value $100,000
Max loss on one trade 2%, or 2000. From all the reading I have done the 2% max loss is very manageable.
No Stop Loss
Don't trade the entire 2% all at once. Buy 1 or 2 contracts at a time depending on price. If the trade goes against you temporarily, you could scale into the trade with further contracts.

So if you are trading a short term "Reversion to the Mean" type trade, it should be fine to trade without a stop loss because the 2% loss would not take out your account.


767 posts
msg #87085
Ignore gmg733
1/26/2010 8:10:05 PM

2% with options? Urr Ugh!

There are two fundamental ways that I do it and it depends what type of options and your trading method:

1) ITM Options: Use ITM options as an alternative to stock and trade it as such. Beware of the delta on the options you are trading as you'll want them close to 1 as possible. In this method, you can set your stop more in accordance as you would traditional do a stop for a stock position. If you usually do a 2% stop, then entertain a 5-6% one. Remember, you are risking less to get more, so don't be greedy, load the boat and blame me if you lose 5%. :)

2) ATM or OTM Options: Use these for spec plays. If your money management is a max of 2% and your portfolio size is $100k, then 2% of that is $2k. Pick your position, either naked or spreads for me, and simply buy your position as the loss total. For instance, say you are speculating on a stock and you want to risk 2% or $2k of you capital. You notice XYZ at .20 per contract, then you can buy 100 contracts for $2k. Then simply manage the position. If it goes against you, your original purchase IS you managed loss point. In other words, you'd lose the whole $2k because that is your at risk.

All things being considered, it is possible to buy an option, have it move in your direction and you lose money. Be aware of the greeks and the price of the option. Sometimes they are inflated as people profit, especially around earnings, on inflated volatility.

I personally like both of these. But all my spec plays are naked calls or puts and I simply buy what my risk is as described above. I like #2 because it is clean and simple. You put money on XYZ, it either goes your way or not. Move onto the next trade. Though it does work better with lower price options.

I don't cost average. But I would see this being an approach with ITM options.

Hope this helps.

msg #87089
Ignore einok
1/26/2010 8:56:21 PM


Why "2% with options? Urr Ugh! "

767 posts
msg #87099
Ignore gmg733
1/27/2010 8:59:51 AM

Because intraday with option is so volatile you'll be stopped out in no time depending on which options you buy.

One other method, that I don't use, is to buy ATM/OTM and set a 25-30% stop loss. I thought about it later, but then again I don't use it.

Again, much like a stock position with a 2% loss, the 25-30% should represent the equivalent dollar amount. You'll be risking the same as an equity position.

Also, keep in mind the bid ask for the options when factoring you stop as not all are penny wide.

4,388 posts
msg #133742
Ignore four
1/15/2017 12:59:42 AM

170 posts
msg #133763
Ignore dashover
1/16/2017 1:03:13 PM

4% in each position
At 100% gain sell 1/2
At 50% loss sell 100%

Critical to follow these rules...

Sometimes, I will convert trades with large gains to spreads or calendar strangles... to protect profits by adding a put etc.
but I prefer to keep it simple.

Biggest mistake is probably, putting too much in each position, and ignoring to sell losers...
...29 years of option trading advice..

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