The only number that sets the size
Every sizing method in position sizing comes down to one division: the money you are prepared to lose on the trade, divided by what one unit loses if you are wrong. For shares, the unit loss is the distance to your stop. For futures, it is ticks times tick value. For options, it is usually simpler than either, because many option structures tell you their worst case before you place them.
contracts = risk budget ÷ maximum loss per contract (round down)
The risk budget is a percentage of the account, decided before you look at the trade. This guide uses 1% and 2% of a $25,000 account: $250 and $500. The maximum loss per contract depends on the structure, and that is where most of the mistakes happen.
US-listed equity and ETF options generally cover 100 shares, and premiums are quoted per share, so one point of premium is $100 per contract. That multiplier is in every calculation below.
Maximum loss per contract, by structure
| Structure | Maximum loss per contract | Defined? |
|---|---|---|
| Long call or long put | Premium paid × 100 | Yes |
| Debit spread (buy one strike, sell a further one) | Net debit × 100 | Yes, at expiry |
| Credit spread (sell one strike, buy a further one) | (Strike width − credit) × 100 | Yes, at expiry |
| Short put, uncovered | (Strike − credit) × 100, if the underlying goes to zero | Bounded but very large |
| Short call, uncovered | No limit | No |
For the first three rows the division above is the whole job. For the last two, the theoretical worst case is either enormous or infinite, so you need a different input — covered further down.
Worked examples on a $25,000 account
All prices below are illustrative, on a stock trading at $100. Commissions are ignored.
1. Long call: buy the 105 call for $2.40
max loss = 2.40 × 100 = $240 per contract 1% budget: 250 ÷ 240 = 1.04 → 1 contract ($240 at risk, 0.96%) 2% budget: 500 ÷ 240 = 2.08 → 2 contracts ($480 at risk, 1.92%)
The premium is the whole risk, and it is a realistic outcome, not a remote one: an out-of-the-money option that is still out of the money at expiry is worth nothing. Size as if it will go to zero, because it often does.
2. Debit spread: buy the 100 call, sell the 110 call, for a net $3.80
max loss = 3.80 × 100 = $380 per spread 1% budget: 250 ÷ 380 = 0.66 → 0 spreads 2% budget: 500 ÷ 380 = 1.32 → 1 spread ($380 at risk, 1.52%)
At 1% the answer is zero, and that is a legitimate answer. It means this structure, at this width, is too large a unit for this account at this risk level. The fix is a narrower spread or a different trade, not rounding 0.66 up to 1 and quietly risking 1.52%. The spread’s maximum profit is (10 − 3.80) × 100 = $620, with a breakeven of $103.80 at expiry.
3. Credit spread: sell the 95 put, buy the 92.50 put, for a net credit of $0.60
max loss = (2.50 − 0.60) × 100 = $190 per spread 1% budget: 250 ÷ 190 = 1.32 → 1 spread ($190 at risk, 0.76%) 2% budget: 500 ÷ 190 = 2.63 → 2 spreads ($380 at risk, 1.52%)
The credit is not the size of the trade. Two spreads collect $120 and risk $380. The maximum profit is the $60 credit per spread and the breakeven at expiry is $94.40.
Always round down. Contracts come in whole units, and rounding up is the one direction that breaks the rule you set. On small accounts rounding down often costs a noticeable slice of the budget — the 2% debit spread above uses 1.52%, not 2% — and that is the correct side of the error to be on.
Three inputs that feel right and are not
Sizing from premium as a share of the account. “I’ll put 10% of the account into calls” sounds conservative. On the long call above it is 2,500 ÷ 240 = 10 contracts, with $2,400 at risk: 9.6% of the account, on a single trade whose most common bad outcome is total loss. For a long option, the premium spent is the risk, so a premium allocation is a risk allocation in disguise.
Sizing from delta. Delta tells you how many share-equivalents a position carries right now. If the 105 call has a delta of 0.35 and you want the feel of a 100-share position, 100 ÷ 35 = 2.9, so three contracts. That is $720 at risk, 2.9% of the account, and the delta will not stay at 0.35 — gamma moves it as the stock moves. Delta is a good description of exposure and a poor basis for size.
Sizing from notional or from the credit. One contract on a $100 stock controls $10,000 of stock, but that figure says nothing about what a long option or a spread can lose. The credit is worse: a trader who wants to collect $500 from the 95/92.50 put spread sells 500 ÷ 60 = 8 spreads, with 8 × $190 = $1,520 at risk, 6.1% of the account, to make at most $480.
You can size a long option from a planned exit instead of the full premium — for example, selling if the option loses half its value, which would make the per-contract risk $120 and allow two contracts at 1%. That is reasonable only if you accept that a gap or a volatility collapse can take you through the exit, and that the full premium is still the real worst case.
Undefined-risk trades: use a stress move, not the margin
An uncovered short option has no useful maximum loss to divide by. Take a short put on an ETF trading at $50: sell the 45 put for $1.00.
Short 45 put for $1.00, ETF at $50
| Measure | Per contract | % of $25,000 |
|---|---|---|
| Theoretical maximum loss (ETF to zero): (45 − 1) × 100 | $4,400 | 17.6% |
| Loss if the ETF gaps 25% to $37.50: (45 − 37.50 − 1) × 100 | $650 | 2.6% |
| Loss at a planned buy-back at $3.00: (3 − 1) × 100 | $200 | 0.8% |
| Minimum exchange margin (see below) | $600 | 2.4% |
The 25% gap is an illustrative stress scenario, not a forecast; pick one you consider plausible for the specific underlying, and larger for single stocks around earnings.
Sized from the stop, 1% allows 250 ÷ 200 = 1.25 → 1 contract. Sized from the 25% stress, even 2% allows 500 ÷ 650 = 0.77 → 0 contracts. The honest reading is that this account cannot sell this put at this risk level if you take gaps seriously. A stop protects you in an orderly market; a stress move is what happens when the market does not give you the chance to use it.
Margin is not risk. For options on ETFs, Cboe’s specifications set the minimum for uncovered writers at 100% of the option proceeds plus 15% or 20% of the contract value, less any out-of-the-money amount, with a floor of the proceeds plus 10% of the contract value. For this put that works out at $100 + $500 = $600 either way. The margin figure answers “how much collateral does the broker hold?”, not “how much can I lose?” — the answer to the second is $4,400. Brokers can also set higher requirements than the exchange minimum and raise them when markets move, which is the moment you are least able to post more.
Sizing so that total margin stays under some fraction of the account is a sensible extra constraint. It is not a substitute for asking what the stress move costs.
Where max loss is not the whole story
- Early assignment. US equity and ETF options are American-style: the holder can exercise on any business day up to expiry, so the short leg of a spread can be assigned before your long leg does anything. Assignment risk is higher around ex-dividend dates, just before them for short calls. The spread’s maximum loss still holds in principle, because you can exercise or sell the long leg, but for a while you can hold 100 shares per contract that you did not plan to own.
- Settlement between the strikes. If the underlying closes between your strikes at expiry, the short leg can be exercised while the long leg expires worthless. You then hold a stock position over the weekend with no hedge, and the defined maximum loss no longer applies to it. Closing spreads before expiry avoids most of this.
- Gaps. A gap does not change the maximum loss of a defined-risk spread, but it does make that maximum far more likely to arrive all at once. For long options and spreads it argues for sizing from the full maximum loss rather than a planned exit.
- Correlated positions. Three 1% trades on three technology stocks behave much like one 3% trade on a bad day for the sector. Add up the risk across positions that move together.
- Maximum loss is at expiry. Before expiry, a spread can show a mark-to-market loss bigger than you expected on a single day, which matters if you might be forced to close it early.
The Options Profit Calculator shows maximum loss and breakeven for a single leg. For multi-leg structures, OptionsDesk builds the position from templates or from scratch and marks maximum profit, maximum loss and breakevens on the payoff diagram, so you can read the per-contract loss straight off it before sizing. It analyses trades; it does not place them.