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The Trade Busters
14 - Trade Sizing and Buying Power Management
Aug 2, 2021
Learn about sizing, risk, and leverage in option strategies. Dive into different trade management approaches and balancing returns with risk. Explore active options in a passive portfolio for a comprehensive strategy.
22:29
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Quick takeaways
- Determine credit target per trade based on desired return to achieve income strategy goals.
- Allocate buying power strategically according to each option strategy's risk profile and leverage requirements.
Deep dives
Sizing Trades Based on Target Return and Premium Capture Rate
When sizing trades for income strategies, it's crucial to determine how much you aim to earn and the risk you're willing to take. For example, with a target return of $10,000 and a 25% premium capture rate, you would need to sell $40,000 in premium to achieve the goal. By breaking down the premium amount based on occurrences per year and entry frequency, you can set a credit target per trade to reach your desired return.
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