Position Sizing

TL;DR: Position sizing determines how many contracts to trade so that no single loss can significantly damage your account.

Position sizing is arguably the most important risk management concept in options trading. The standard guideline is to risk no more than 1-2% of your total account on any single trade. To calculate position size, start with your account value, multiply by your risk percentage (e.g., 1%), then divide by the maximum loss per contract for your chosen strategy. For example, with a $50,000 account risking 1% ($500) on an iron condor with $200 max loss per contract, you would trade 2 contracts.

Proper position sizing prevents a single bad trade from derailing your portfolio. Even strategies with high win rates will experience losing streaks — a 75% probability-of-profit strategy will still see three consecutive losses roughly 1.5% of the time. Without disciplined sizing, one oversized position during a losing streak can wipe out months of gains. The goal is to stay in the game long enough for your edge to play out across hundreds of trades.

Beyond the per-trade calculation, consider your total portfolio exposure. Having five open positions each risking 2% means 10% of your account is at risk simultaneously. If those positions are correlated (e.g., all tech stocks during a sector selloff), they could all lose at once. Use ThetaCommand to track your open positions and total portfolio risk in one view.