Options risk disclosure: Options involve risk and are not suitable for all investors. Before buying or selling options, read the OCC’s Characteristics and Risks of Standardized Options (the Options Disclosure Document). Not financial advice. This is education, not a recommendation to buy or sell any security. Past performance does not indicate future results.
Disclosure: Education only, not financial advice, not a broker. 360Trader does not execute trades or hold client funds.
I’ve been trading 30+ years. The traders I’ve watched blow up usually picked fine trades. They just sized them wrong. Here’s how I size options, step by step.
Why sizing matters more with options
Options create leverage through their contract terms (Investor.gov). For a buyer, the whole premium can be lost (Investor.gov). So I don’t start with what a trade could make. I start with how much I’m willing to lose on it, all of it.
Step 1: Set your own maximum loss per trade
Your limit depends on your money, your goals and your stomach. Pick a dollar amount you could lose in full on one trade without it hurting you. Write it down before you open a chart.
How we teach it at 360
For smaller accounts, 360Trader teaches a maximum of 5–10% of the account on any single options trade. That’s how I teach it. It isn’t an industry standard. It’s a ceiling, not a goal. Going smaller is fine, and plenty of traders do. Your limit is your call.
Step 2: Know the cost per contract
One contract represents 100 shares, so cost = premium × 100 (Investor.gov). For a bought option, that premium is your maximum loss (FINRA), plus commissions.
Step 3: Calculate the number of contracts
Contracts = your max loss ÷ (premium × 100), rounded down.
Illustrative calculation (not a recommendation)
- Premium $2.20 (from Investor.gov‘s example), so one contract costs $220.
- A hypothetical reader’s limit of $500 gives $500 ÷ $220 = 2.27, rounded down to 2 contracts.
- Amount at risk: 2 × $220 = $440, plus commissions. If both expire worthless, the reader loses the full $440.
Step 4: Plan for losing streaks
A bought option can lose 100% of its premium (Investor.gov). So risking the maximum on each trade means a run of full losses compounds.
Illustrative calculation (not a prediction)
Assumptions: each trade risks a fixed % of the current account, and each loser expires worthless (−100%). Commissions are ignored. Remaining account = (1 − risk %) ^ number of consecutive full losses.
| Consecutive full losses | At 10% per trade | At 5% per trade |
|---|---|---|
| 1 | 0.90 → 90.0% left | 0.95 → 95.0% left |
| 2 | 0.90² → 81.0% | 0.95² → 90.2% |
| 3 | 0.90³ → 72.9% | 0.95³ → 85.7% |
| 5 | 0.90⁵ → 59.0% | 0.95⁵ → 77.4% |
| 10 | 0.90¹⁰ → 34.9% | 0.95¹⁰ → 59.9% |
At the 10% max, five full losses in a row leave you with about 59% of the account. Decide ahead of time what drawdown makes you stop and take a hard look.
Costs that eat into small positions
Frequent trading adds transaction costs (Schwab). Illiquid options have wide bid-ask spreads, which can make them hard to close at a fair price (Vanguard).
Sellers: sizing is different
For some sold options the loss isn’t capped at a premium. Uncovered calls carry theoretically unlimited loss (FINRA), so the formula above does not apply.
Practise sizing for free
The free 360 Options Academy shows break-even and worst case on every practice trade.
Where Stock Slayer fits
360 Elite Stock Market Slayer is where I post 1–2 weekly options trades a week, by Telegram. Some lose. Some expire worthless and lose the whole premium. Nobody here promises profits. You pick your own size. I don’t size it for you.
Related guides
- Weekly options explained
- Buying calls vs puts
- How to read an options trade alert
- Options time decay (theta) explained
FAQ
How many option contracts should I buy?
That depends on the maximum loss you set. Divide it by premium × 100 and round down. This is not a recommendation.
What percentage of my account should I risk on options?
At 360 we teach a maximum of 5–10% per trade for smaller accounts. That’s a ceiling, not a target, and less is fine. Because a bought option can lose 100%, losses at the maximum compound quickly. Choose your own limit.
Does a stop-loss limit my options loss?
Not reliably. Illiquid options can be hard to close at a fair price (Vanguard), so plan as if the whole premium could be lost.
Risk disclaimer: Education only, not financial advice, not a broker, and not a recommendation. Options involve risk and are not suitable for all investors. Read the OCC Options Disclosure Document before trading. Bought options can expire worthless (100% loss of premium); some sold options carry unlimited loss. Past performance does not indicate future results.
Education only. This is not financial advice and 360Trader is not a broker or an investment adviser. Nothing here is a recommendation to buy or sell anything. Trading involves risk, including the loss of your whole position.