Stock Market Options Trading 136: The Most Important Skill in Options Trading (And Why Many Ignore It)
9 snips
Jan 6, 2025 Explore the crucial but often ignored skill of position sizing in options trading. Discover how it shapes risk management and influences overall trading success. Learn about strategic approaches like the zero DTE iron condor and put credit spreads. Delve into how personal risk tolerance interacts with trading styles, affecting performance. Gain insights into treating trading strategies like a portfolio to ensure consistency and success, especially for novices.
AI Snips
Chapters
Transcript
Episode notes
Position Sizing's Importance
- Position sizing is one of four core elements determining trading strategy success: win/loss rate, average win/loss size, and position sizing.
- The first three elements (win/loss rate, average win/loss) define expectancy; position sizing concerns overall portfolio.
Position Sizing Examples
- Eric O'Rourke presents a put credit spread strategy on SPX with a 73% win rate, $300 average loss, and $200 average win.
- He demonstrates how different position sizes (1%, 2%, 3% risk) impact returns and drawdowns using a $100,000 account.
Allocation Advice
- Keep allocations small, ideally 1-2%, especially when starting with options.
- Smaller accounts might naturally have higher percentages due to minimum trade sizes.