Page 1 of 1
How to manage position sizing for option?
Posted: Mon Oct 03, 2011 4:44 am
by oem7110
If I trade stocks, there is no leverage, so whenever I have profit, I can add position under certain conditions.
On the other hands, if I trade option, there is leverage, such as 20 times leverage, so whenever I have profit, I get no idea on how to add position, because it has leverage and more difficult to control like trading stocks.
Does anyone have any suggestions on how to manage position sizing for option?
Thanks in advance for any suggestions
Posted: Mon Oct 03, 2011 8:57 am
by drm7
The way I would approach it is to take the option premium and make that your "1R" risk.
As to adding to positions, time decay makes it problematic. However, you could try adding a position to the next expiration month. So, if you bought 10 NOV calls and your system tells you to add another 0.5R on x profit, but NOV options are only 2 weeks from expiry, you can buy 5 DEC (or JAN) calls to give yourself more breathing room.
Posted: Mon Oct 03, 2011 10:35 am
by oem7110
drm7 wrote:The way I would approach it is to take the option premium and make that your "1R" risk.
As to adding to positions, time decay makes it problematic. However, you could try adding a position to the next expiration month. So, if you bought 10 NOV calls and your system tells you to add another 0.5R on x profit, but NOV options are only 2 weeks from expiry, you can buy 5 DEC (or JAN) calls to give yourself more breathing room.
Let take "1R" risk at the first position and assume the leverage for Call option to be 20 times, if the market keeps rising, then the Call option leverage will drop a lot, when I try to add the second position by taking "0.5R" risk, could you please give me any suggestions on how to select the right leverage for the next month? I prefer 20 times leverage for Call option on the next month, but if the current active one is 10 times leverage for Call option, should I still taking "0.5R" risk for 10 times leverage? or should I risk more?
Do you have any suggestions?
Thanks you very much for any suggestions
Posted: Thu Oct 06, 2011 11:06 pm
by Bravochico
You should only use options for special situations. Trading options to get your exposure routinely is, well I just say that I yet to meet a rich option trader.
Posted: Thu Oct 06, 2011 11:44 pm
by oem7110
Bravochico wrote:You should only use options for special situations. Trading options to get your exposure routinely is, well I just say that I yet to meet a rich option trader.
Well, there is a difficult money management issues, which involve leverage that I face with, and try to solve this one.
Does anyone have any suggestions?
Thanks everyone very much for any suggestions
Posted: Fri Oct 07, 2011 10:54 pm
by Bravochico
Use ultra share ETF s and,or futures.
If you thinking about buying options to get your exposure you are in for a lot of problems.
By leverage issues, I assume you are going to be a buyer of options. short sellers of option premium use little leverage.
I've been trading a long time and I've seen some of the smartest traders never really make it trading options. But I've seen a few guys with average intelligence get rich trading futures,stocks.
With ultra ETF s, you don't need options.
Someone else opine here and save him alot of future headaches.
