Position Sizing
How to Size an Options Trade
By Hamza Hamed · Published · Updated · 3 min read
Short answer
To size an options trade, decide the maximum dollar amount you are willing to lose first, then divide it by the realistic loss per contract. That number — rounded down — is the most you should trade. For bought options, assume the realistic loss can be the entire premium unless you have a firm plan to exit earlier.Start from risk, not reward
Most oversized trades come from picking a profit target first. Reverse it. Choose a fixed percentage of the account you are willing to lose on any single idea. Many educators discuss small fractions, often in the range of 1–2%, but the right number depends on the person and must be decided in advance.
The basic formula
- Account risk ($) = account size × risk percentage.
- Risk per contract ($) = (entry premium − planned exit premium) × 100. If you have no planned exit, use the full premium × 100.
- Contracts = account risk ÷ risk per contract, rounded down.
- If the answer is less than one, the trade does not fit. Choose a smaller contract, a spread, or skip it.
Worked example
A $5,000 account risking 2% has $100 of risk per trade. A call at 2.50 costs $250. If the trader plans to exit at 1.50, risk per contract is $100 — one contract fits. If they plan to hold to expiration, risk is $250 — zero contracts fit.
Same account, same idea, different exit plan, different size. That is why exits must be defined before entries.
Adjust for how the contract behaves
Short-dated contracts can gap through planned exits. Wide bid-ask spreads mean you may not get the price you expect. In fast markets — or with 0DTE options — consider using the full premium as your risk even with a stop plan.
Defined-risk spreads
Vertical spreads cap both profit and loss. The maximum loss is known at entry, which makes sizing straightforward and is one reason they're often discussed for small accounts.
Position sizing examples
| Account size | Risk per trade | Max loss | Contracts if each risks $50 |
|---|---|---|---|
| $2,000 | 1% | $20 | 0 — the trade is too large |
| $5,000 | 1% | $50 | 1 |
| $10,000 | 1% | $100 | 2 |
| $25,000 | 0.5% | $125 | 2 |
Illustrative arithmetic only. Max loss = account × risk %. Contracts = max loss ÷ risk per contract, rounded down.
Risk considerations
Position sizing reduces the damage of any single loss; it does not prevent losses. Slippage and gaps can make real losses larger than planned.
Frequently asked questions
What percent should I risk per trade?
There is no universal answer. Many educators discuss small fixed fractions of the account. Choose a number in advance and keep it consistent.
Should I size by number of contracts?
No. Size by dollars at risk. The number of contracts is the output of that calculation.
Primary sources
About Hamza Hamed
Hamza Hamed is the founder of HamedTrades and creates educational content about trading, options, SPX, market analysis, position sizing and risk management.
Learn more about Hamza Hamed