Hi Everyone, This is my first post here as Iâve just recently discovered this site and I'm new to much of this so please forgive in advance any rambling or unclear statements. If I'm unclear about anything I'll try and clarify if asked. All answers/responses are greatly appreciated. The post turned out to be much longer than I thought (4 pages in Word) so will be broken up. So I came up with a tiny little system that in backtesting over 5 years and in actual use over the last 1.5 years has been performing well. It rarely trades so it's really nothing to write home about but I'm using it to learn about systems. It's option based and designed to catch volatility using diagonal calendars that are entered based on very strict criteria. Since it's diagonal calendar option based, it brings up a couple of questions about risk. In addition to those questions I have others as well as below. I've also been trying to read a lot about money management here and elsewhere. Before that though, I was pretty happy with my analysis of the strategy and comfortable with the risks. I had looked at risk almost strictly from a risk-of-ruin standpoint because I think drawdown is inadequate. The reason I say this is because if you have a volatile strategy that just never happens to have several losers in a row on backtesting - you won't see a drawdown that could ruin you. The other problem I have with drawdown is that I can see how having multiple open positions might mask a large drawdown if losses coincided with simultaneous gains. With ROR the potential masking effect isnât there. By concentrating on risk of ruin I feel you can be more assured of not losing all of your capital. The two questions that come up are: 1) What exactly is considered âat-riskâ during a trade? 2) If Iâm wrong about my comparison between ROR and drawdowns â why? Since the trade is calendar based - there is an amount of capital required to open the trade, but in actuality if the underlying moved an extreme amount â you could lose the initial capital plus the difference in strikes. I chose to use the latter for my %Return values to be conservative. Another amount that could be considered âat-riskâ would be based on the exit criteria. The trade is supposed to be exited on the first day that the trade loses 2k or before it gets too close to expiration. In actuality â the biggest loss was a little over 3k, but it would be extremely unlikely to lose everything since a stock would need to lose >50% in one day of itâs value just to lose the initial capital (not including the extra 5k). I know this is very possible, even if unlikely, and in fact periods of high anticipated volatility (not including earnings which is an exclusion), usually are partial setups for the trade. So while possible, itâs very unlikely that the entire âat-riskâ amount is truly at risk. This question can be extrapolated to stock trades as well. Letâs say a system trades Google and used 1000 shares at a cost of $400. If the system being used theoretically exited with a stop-loss of 2k which would imply realistic loss âmaxâ of 6k, but was at risk of a 8-10% or more loss (approximate historical max loss on Google) â itâs nearly impossible for the value of the position to go to 0 - it would require Google going bankrupt overnight without any warning â and even then it would be worth maybe a dollar . Itâs not unheard of though for stocks to lose 50% of their value in a day. So in this case what would be âat-riskâ? Would it be the full $400k, $200k, $40-$50k or 6k? Given what happened when the CFO misspoke and it plummeted 30 points in 2s, I would be tempted to say the 40-50k, but being more conservative I would probably say 200k. Iâm curious to hear what everyone else thinks. At first glance this may not seem to matter because the %Return would of course be based on the full 400k, but if you are using margin for the plays â then the amount at risk is very relevant. I think itâs also very important because, to me, the amount âat-riskâ could really be considered the actual âbet sizeâ when looking at position size. If you consider your bet size to be the âat-riskâ amount, then the amount of capital required increases dramatically compared to if you only look at the average max loss and even the historical max loss.