SteadyOptions is an options trading forum where you can find solutions from top options traders. Join Us!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

The Importance of Position Sizing

What is the most important risk management tool? It's not stop loss. It's position sizing. We discussed the importance of position sizing many times. We discussed why we don't recommend putting more than 10% of your account into a single trade. But the markets provide us with more evidence every single time.

Our members are familiar with our new "risk free" trade that we introduced a few weeks ago. This is a very low risk and high probability trade, and one of the members posted the following question:


"I am trying to understand more in terms of how many contracts I should buy if I have let's say $10K in my trading account? If the margin is on average $900 per contract can I safely trade like 10 contracts with a $10K account?"

The answer is a big NO!!!!!!!!!!!!!!! You never put your whole account into one trade.

Our last week trade provided a good reminder why you should never do it.

I woke up on Friday with no internet connection - turned out to be a massive Canada wide outage that affected millions of Canadians. A complete network failure - no Wi-Fi, mobile network or phones.

While the official trade was close early morning on Friday for a modest loss, I could not close the QQQ combo position on Friday.

If I was assigned the short options, it would be not that bad - I would be short 200 shares of QQQ and long 4 calls. In terms of delta, it would be not too directional, and I would just close the shares and the calls at the same time.

However, IB algorithm is different from other brokers. This is how it works:


"Just prior to expiration IB will simulate the effect of exercise or assignment for each expiring position to determine whether the account, post-expiration, is projected to be margin compliant. IB may liquidate positions in the account to resolve the projected margin deficiency for Accounts which do not have sufficient equity on hand prior to exercise."

This is exactly what happened. Around 15:30, the algorithm determined that assignment of the short calls will cause margin deficiency, and according to their policy, they liquidate most of the short calls (just enough to prevent margin deficiency). The rest of the short calls were assigned, so I was left short QQQ shares and long significant amount of calls. 

According to Murphy's laws, the markets gapped down today, and I was forced to close the calls for a significant loss.

As one of our members mentioned, this is a very useful reminder of how strange events, that 1-in-a-10,000 chance of something happening can result in unexpected losses. What are the chances of there being a Canada-wide outage? What are the chances that it will happen on Friday and last the whole day? 

This is why position sizing is so important. No matter how safe and low risk the trade looks, unexpected can always happen. If you keep your position sizing under control, you can still recover.

This is also a good reminder of how conservative our performance reporting is. If we close (for example) 4 trades per month, each for 5% gain, what gain would we report? Many other services would report a 20% gain - but that means they put the whole account into a single trade. We would report a 2% gain because each trade represents 10% allocation.

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills


Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles


  • What is Gamma Hedging and Why is Everyone Talking About It?

    The options markets significantly changed following the pandemic. People got laid off from their jobs or sent to work from home and got bored, so they started trading options. But brand new retail traders weren't selling SPY call spreads. They were buying weekly options in high-momentum, and they were doing it in numbers enough to alter the order flow of the entire options market.

    By Pat Crawley,

  • Risk/Reward vs. Win Ratio

    Whether you're a value investor or short-term options trader, the game of financial markets ultimately comes down to putting the probabilities slightly in your favor rather than making deterministic calls as to where the S&P 500 will be next month.

    By Pat Crawley,

  • How to Get Started as an Investor

    Money makes the world go round, as many people are well aware of by now. If you have a measure of wealth, then you also have a measure of freedom and security in your life. Money doesn’t mean living a lavish lifestyle, especially if you want to use it properly and responsibly.

    By Kim,

  • Should You Hedge or Diversify?

    Using the most popular S&P 500 ETF (SPY) to represent the US stock market, this article will look at different ways to manage equity market risk using historical ETF and options data from ORATS Wheel since 2007. We will analyze the following unhedged, hedged and allocation choices:

    By Jesse,

  • Market Orders vs. Limit Orders

    While advanced trading platforms allow you to customize orders endlessly, most of them still boil down to a few basic types of orders:

    By Pat Crawley,

  • 7 Steps To Improve Your Trading In 2022

    Gazing at the trading screen or investing a large amount in the stock market is not enough to improve your trading skill and increase the chance of winning a stock. Rather, gathering proper knowledge, and presence of mind is very important to perform confidently in the trading market.

    By Kim,

  • Starbucks: Using Options to Play Capped Upside Potential Post-Earnings

    Discretionary stocks have led the S&P 500’s recovery over the last several weeks Starbucks faces several headwinds, and the bar might be low enough come Tuesday night when earnings hit the tape, but resistance on the chart suggests caution. ORATS highlights a bearish bet options traders can make.

    By ORATS_Matt,

  • Alcoa Earnings Report July 20th, 2022

    Welcome to the ORATS earnings report where we scan for companies with upcoming earnings announcements, check out historical earnings information, and find a potential options trade. Read on or watch the video overview here:

    By ORATS_Matt,

  • Put Selling: Strike Selection Considerations

    When selling puts, such as we do in our Steady Momentum PutWrite strategy, there are many questions a trader must answer: What expiration should I use? What strike should I sell? Should I choose that strike based on delta or percentage out of the money?

    By Jesse,

  • IBM Earnings Report July 18th, 2022

    Welcome to the ORATS earnings report where we scan for companies with upcoming earnings announcements, check out historical earnings information, and find a potential options trade. Read on or watch the video overview here:

    By ORATS_Matt,


  Report Article

We want to hear from you!

There are no comments to display.

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

Options Trading Blogs Expertido