Hello, Lets say. 1) Current range is: The price of an equity within the range of $50.20 - $50.30 10 cent dead zone. 2) You have a 90% probabiliy it will drop to at least $45.00 3) IT is also trending down. 4) The price should never break $50.31 You can also use YM/NQ/ES futures with the same situation. How many contracts or stocks would you go short? 100 shares? 500 shares? 5 shares? 10 contracts? 2 contracts? 50 contracts? 500 contracts?
If liquidity is not an issue and there is a 90% probability that the stock will drop 5+ points in my favor and I can use 50.31 as my stop for my entire position so I am risking 11 cents to make 5+ points, I would short at least 100,000 shares. I'd be willing to lose $11k to make over 500k. Of course this scenario is highly unlikely, as no one can predict with 90% certainty where any stock will go but with this example, I would short as much as I could (of course my firm would never give me that much buying power ).