Lesson

Risk per trade sizing | Options Educator

Preview risk units, add protective orders, and see exposure shift with hedges.

What you'll practice

  • Set the size to the most shares whose loss at the stop stays inside your risk unit: one more share would break it.
  • Suppose the stop belongs at $90.00 instead. Move it there and resize until the trade uses your risk unit again without passing it.
  • Predict: if the stop sat half as far from the entry, what happens to the most shares your risk unit allows?

In this lesson

Position Sizing Fundamentals

  • Never risk more than 1-2% per trade
  • 1R = maximum loss defined before entry
  • Target at least 2R (2x your risk)
  • Small risk = survival through losing streaks

Calculating Position Size

  • Calculate risk BEFORE entering any trade
  • Options: premium can equal risk (simplest method)
  • Consider delta exposure for true position size
  • Always check notional exposure and leverage

Stop Loss Strategies

  • Hard stops are automatic and emotion-free
  • Place stops at technical levels, not arbitrary %
  • Options stops typically 30-50% of premium
  • Size so dollar risk is constant

Adding Hedges to Positions

  • Protective puts limit downside
  • Collars provide zero-cost protection
  • Spreads reduce risk vs naked options
  • Often cheaper to size smaller than to hedge

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