Position Sizing

Position sizing is deciding how much of your account to commit to a single trade — a separate question from how good the setup itself looks. For options sellers, that usually means weighing how much cash or margin a position ties up relative to the whole account: selling 4 contracts of a cash-secured put instead of 1 can turn a reasonable trade into one that risks a large chunk of the entire portfolio on one company. Many risk-conscious traders cap any single position at a modest percentage of account value, though the right number depends on account size and risk tolerance. Sizing doesn't change how risky any individual contract is, but it controls how much a single bad outcome can cost — and that effect compounds when several oversized positions are open at once.