Position Sizing for Options: The Skill That Keeps You Alive
Position sizing decides how much you trade per position based on risk, not capital. Here's a simple framework that protects your account.
Short answer: Position sizing is deciding how large each trade should be based on the rupees you're willing to lose — not the margin you have. Set a per-trade risk limit (e.g. 1–2% of capital), then derive the position size from your stop distance. Size from risk first, always.
Why it matters most
Most blown accounts aren't from bad strategies — they're from oversized positions meeting a normal losing trade. Good sizing means no single trade, or even a string of losses, can take you out.
A simple framework
- Set risk per trade — e.g. 1% of ₹5,00,000 = ₹5,000 max loss.
- Define your stop — the MTM level where you exit (see MTM stop-loss).
- Derive size — choose lots so that hitting the stop loses ≈ your risk budget, not more.
- Cap total exposure — limit how many concurrent positions/correlated trades you run.
| Account | Risk/trade (1%) | Implication |
|---|---|---|
| ₹2,00,000 | ₹2,000 | Small lots, tight stops |
| ₹5,00,000 | ₹5,000 | Moderate sizing |
| ₹10,00,000 | ₹10,000 | More room, still capped |
Sizing under bigger contract values
With larger index contract sizes (see SEBI F&O rules), one lot risks more — so disciplined sizing matters even more. Hedged structures reduce both risk and margin.
FAQ
Should I size by margin available? No. Available margin tempts overleveraging. Size by the loss you can absorb.
What's a reasonable risk per trade? Many traders use 1–2% of capital per trade. Lower is safer; higher accelerates both gains and ruin.
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