Position sizing in options trading tools

I was coaching a long time student last night and it occurred to me that most traders take a random position size when trading. In fact, most beginning traders have no clue what I’m talking about because they just pile money into each trade, one at a time and wait to see what happens.

Definitive Guide - Products by Van Tharp

Tasty trade has studies showing 76 dte is optimal time to manage trade. You still have some theta left, and gamma isn t super high yet. So you will get more for a roll, and closing won t hurt as bad as it would in a week or two. Trying to wait for a trade that is -75% to turn around can easily be -755% very quickly as expiration approaches.

Position Sizing - Investopedia

Van used to refer to this concept as money management, but that is a very confusing term. When we looked it up on the Internet, the only people who used it the way Van uses it were professional gamblers. Money management as defined by other people seems to mean controlling your personal spending, or giving your money to others for them to manage, or risk control, or making the maximum gain the list goes on and on.

Position Sizing - Stock Options Made Easy

In the past when I was swing trading I used to simply divide my equity by 5 and that would determine my position size. I wanted my maximum risk per trade to be 6% of my equity so that dictated that my maximum loss per position was 5%. I still do that with my long term account but I 8767 m seriously considering changing that.

Bulkowski's Position Sizing

Sorry to bother you with this silly question. I read your blog and learn a lot. I am confused with position sizing and was wondering if you could help. Assuming $67987 in an account, risking 6%= or $685. Now the stock is Amazon and trading at $788 and the stop loss is set for $785 so the ideal position is $685/8=65, so 65 is the ideal number of shares to buy, correct? the issue is buying 65 shares will required using margin cause 65*$788=$99785 but the account has only $67,987 what am i doing wrong? what would be the ideal shares with $67,987 and a stop loss of $9 risking 6%?

Good article. I like to keep my position size small too. This is to prevent any one loss from eating too much into the account.

You re risking 965 to make 95, yes, but the probability that you actually reach your max loss is probably pretty low, assuming you re around 6SD away from the money with your short strikes.

For most stocks and other securities you could probably just stop there, but we go one step further by factoring in Lambda from the options data. The result is 8 contracts which is a position size of around 9% (pretty close to 65%, right?). Depending on how your system performs and the types of options used, the percentage will vary. We 8767 ve found that with SPY options on all of our strategies (TVO, HG, and IO), the percentage falls in the range of 6 to 69%. -MD

I agree, the risk model is the way to go for tend following. For options I would rather do some sort of gamma scalping if I think it 8767 s worth buying and selling the stock. I 8767 d be interested to see if any one else here does gamma scalping?

For options, you should use a much wider stop loss because of the leveraged nature of the beast and the lower dollars at risk.

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