Position Sizing

Position sizing is the decision of how much of an account to commit to a single trade — a decision that's distinct from, and shouldn't be confused with, how attractive a particular strike or setup looks. For options sellers, sizing typically means looking at how much cash or margin (the funds set aside or borrowed to support a position) a single position ties up, relative to the whole account: selling 4 contracts of a cash-secured put (a put option sold while holding enough cash to buy the shares if assigned) instead of 1 can turn a reasonable trade into one that risks a large share of the entire portfolio on a single company. Many risk-conscious traders cap any single position at a modest percentage of total account value, though the right number depends on account size and overall risk tolerance. Position sizing doesn't change how risky any individual contract is — a given strike carries the same per-share risk whether it's 5% or 50% of an account — but it does control how much a single bad outcome can cost relative to everything else being held, and the effect adds up when several oversized positions are open at the same time.