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Core Options · OPT-17 · Core

Position sizing

How many complete structures fit the risk budget?

One concept per page · original written lesson · 322 prose words · authored, not installed or production-approved

What you will learn and prerequisites

Read first: Read a contract and its premium, Rights, obligations and expiration, Defined payoff risk is not margin, Read the whole multi-leg ticket

Position size belongs to the whole strategy, not one attractive-looking premium. A four-leg condor is one economic position with a defined set of offsets. Count contracts, multipliers and costs explicitly.

Budgeted terminal loss and a discretionary stop loss are different quantities.

Understand the mechanism

For a hypothetical defined-risk spread, risk capacity divided by loss per complete unit gives a ceiling before other constraints. Round down, then consider correlated positions, liquidity, assignment and operational paths.

Margin is not necessarily that loss measure. Uncovered strategies need stress and funding analysis beyond a simple bounded-payoff division.

Walk through the process

Start with tolerable account impact rather than the number of contracts buying power permits. Include plausible costs. Assess aggregate exposure across symbols that react to the same event.

A smaller premium does not justify increasing quantity until the risk feels large enough.

Contract and decision boundary

Terminal examples use simultaneous intrinsic realization of all stated legs, before unspecified costs. Actual American exercise, assignment, early liquidation and broker handling can create different interim cash needs. These fictional comparisons are education, not orders or personalized investment advice.

A worked example

A fictional budget is 1,000. One five-point-wing condor collecting two points has 300 terminal loss before costs. Add 2.60 entry fees per four-contract unit: loss becomes 302.60 under the joint-settlement model.

Three units fit at 907.80. Four do not, at 1,210.40. The graph scales total loss by complete strategy units, not by single legs.

Position sizing—worked comparison

Vertical: Modeled terminal loss incl. entry fees (USD)
Horizontal: Complete condor units

Position sizing—worked comparisonFictional data from the written example. The chart organizes the comparison; its shape is not a forecast. The complete numerical data are available below.193.664479.318764.9731,050.631,336.281,621.9411.82.63.44.25
1. Fictional example
Fictional data from the written example. The chart organizes the comparison; its shape is not a forecast.
Read the graph as a data table
Complete graph data; original fictional observations or model calculations
Complete condor unitsFictional example
1302.6
2605.2
3907.8
41,210.4
51,513

What would invalidate the reading?

Using the credit collected as the risk denominator or counting a condor's four legs as four independent hedges understates exposure.

Check your understanding

Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.

How many 302.60-risk units fit a 1,000 budget?

Reveal the worked answer

Three.

Floor(1,000/302.60); other portfolio constraints may reduce it further.

Critical risk question

What is the critical failure to avoid?

Reveal the worked answer

Using the credit collected as the risk denominator or counting a condor's four legs as four independent hedges understates exposure.

Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome.

Takeaway

Return to the question: How many complete structures fit the risk budget? State the observed facts, the assumptions and the failure condition separately.

Sources, assumptions and downloadable script

External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.

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