Do you make decisions based on the number of contracts or a specific dollar amount to invest ?

Bet-sizes are most often viewed as a percentage of acct net liq, eg my acct is $100k, so I want to put 5% into a trade ($5k).

Most traders/gamblers use the kelly criterion to size their bets (size increases with edge). Read books by pro blackjack players, gamblers are often more disciplined than traders when it comes to managing a bankroll.
 
Doobs789 said:
Read books by pro blackjack players, gamblers are often more disciplined than traders when it comes to managing a bankroll.
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Gambling is more left-brain/analytical; while ...Trading... can be much more ambiguous, :confused:o_O and complicated
 
Doobs789 said:
Bet-sizes are most often viewed as a percentage of acct net liq, eg my acct is $100k, so I want to put 5% into a trade ($5k).

Most traders/gamblers use the kelly criterion to size their bets (size increases with edge). Read books by pro blackjack players, gamblers are often more disciplined than traders when it comes to managing a bankroll.
More...

Welcome back.

What is 5percent on a naked put?
 
DallasCowboysFan said:
I was just curious as to how many option contracts the average person buys when they make a trade.

Do you normally average 1, 5, 10 contracts......or is it based on the cost of each contract and the level of your confidence in the trade?

Or, instead of limiting yourself to X number of contracts do you restrict yourself to how much you spend on a decision? In other words, instead of saying that "I will buy 5 contracts at $2500', do you restrict yourself to risking $2500 ( or $1,000 or 5,000 ) on any investment, regardless of the number of contracts?

Is it the number of contracts or the dollar figure ?
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Really depends on what markets, how strong you feel about the direction, the strike price, your projected price for the underlying. How much risk? The options delta and time value....
 
Novice traders and greedy gamblers put on position sizes significantly larger than the long term successful pros would ever dream of which is why 96% wash out. My risk is approx 1% MAX of total capital per trade: so as an example I would never take a position size of more than 1 ES contract per $100k of my capital. When I hit 10-20 losers in a row it is just a draw down from which I always been able to recover from - If I sized up any larger I will be on the road to ruin.
 
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newwurldmn said:
Welcome back.

What is 5percent on a naked put?
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I guess you can still limit loss on a naked put by putting a SL. If you can't (Manage your risk) then don't trade it. Simple.

Only rookie expose themselves to unlimited / unbounded downside.
 
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Apophenia said:
I guess you can still limit loss on a naked put by putting a SL. If you can't (Manage your risk) then don't trade it. Simple.

Only rookie expose themselves to unlimited / unbounded downside.
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A stop loss isn't an ROI tool because the whole point of options is gap risk. If gap risk didn't exist there would be no need for an options market (you can synthetically create options yourself). You can use stops to mitigate gap risk.

So if you say sell a naked call and in the after hours the stock gets taken out for a hundred percent premium (like LNKD) then your stop is meaningless.
 
newwurldmn said:
A stop loss isn't an ROI tool because the whole point of options is gap risk. If gap risk didn't exist there would be no need for an options market (you can synthetically create options yourself). You can use stops to mitigate gap risk.

So if you say sell a naked call and in the after hours the stock gets taken out for a hundred percent premium (like LNKD) then your stop is meaningless.
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Use another option as a stoploss.
 
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