Quote from Ghost of Cutten:
The thread is about a "Rule of thumb for position sizing", hence the title. It is not, and never purported to be, a precise calculation of optimal position size under all circumstances, timeframes, leverage conditions etc.
Some of you seem to misunderstand what a rule of thumb is, or what one is for, so I will clarify - a rule of thumb (aka a heuristic) is just a fast, simple, but useful and robust rule to aid in quick decision-making. It's something you can work out in a few seconds when time or simplicity is of the essence. Why use them? Because it is much more useful in a pressure situation to be able to get an approximately correct answer very quickly, than to get a more precise answer over a longer period of time. That is why rules of thumb exist. Once you understand this, you will realise how pointless and misguided it is to criticise one just because it isn't always precisely correct in all circumstances.
As for your stock market vs option scenario, at no point did I suggest risking 25%. If you read my post, you will see that the maximum risk I proposed was 2-4%. With a 90% win rate, and positive expectation, you are unlikely to run into problems risking 2-4% per option trade. As for your willingness to risk 25-30% of capital on any given position, that's merely evidence that you have a very high willingness to risk career-endangering losses. The Dow once fell 89% over 3 years, so clearly SPY can fall at least that much in future. The fact is that if you had risked this in the Nikkei in 1990, then 22 years later you would have lost 70%+ of your trading capital. So, I think your risk tolerance is insane, and you have no risk management to speak of.
