What percent of my cash should I use for trading?

Discussion in 'Options' started by johnshepherd59, Jun 14, 2012.

  1. Let's say I have a 50k account. Since options are highly leveraged, do you all think I should use more than 5% of my account per week? Many option strategies have only two outcomes at expiration. You either make money or you lose it all (e.g. the popular butterfly strategy). I am focusing on weeklies right now. They tend to be riskier.
    Also, anybody here successful trading weeklies?
  2. This question must consider many issues that are personal to you. Your global plan should be discussed with a qualified counselor paid by the hour.

    You should not be speculating with more than say 15-25% of your total portfolio...so if 50K is that...then you can see what to do here with the replies that you get addressing trade management....if 50K is all that you have well you better be making a minimum of 25% APR with those funds..or simply do not speculate. 15% * 50K = $7,500.00. Remove those excess funds from the speculation account and get them invested appropriately.

    Do you have health insurance?...long term care insurance?...have you prepared life insurance for your family? Is there a Roth set up?...pension or retirement plan? (Consider funneling 25% of your GROSS earned income per year into your Roth)

    What kind of work do you do?...how old are you?...etc..

    Are you a homeowner?...are you married? how many kids...? what tax bracket are you in?

    It goes on and on...Do you expect to get the picture for YOU on an Internet board filled with anonymous characters?


    P.S. You are posting about trade management...which can be answered here...but shouldn't you look at the bigger picture of portfolio management too?
  3. Trading Acct ?

    The question isn't how much of your account you should use, but your defined max risk per trade... 1%, 2%, 3%, etc...

    Ideally you are utilizing or leveraging 100% of your trading capital when opportunity presents itself, never exceeding your defined max risk...

    This can only be derived by determining the expectancy of your trading plan...
    [assuming you are profitable]

    If trading multiple instruments beware of compounding risk due to correlation

    Quick link on risk...
  4. Thank you for the response guys. Well, I started with 100k capital for trading, which has dwindled to half that. I took a lot of risks, which ended up biting me. What I did was, I bought Citigroup Leaps with all 100k thinking that it wasn't going to go down from the $3.50 stock value (before the reverse split). Well, it didn't go down all right. It quickly shot up to 4 bucks, when I decided to roll my LEAP from 2.50 to 4. The stock kept going up. I managed to get my account to 300k. Then Japan had their Tsunami, and Greece had their problems. I still had around 200k. Then I decided to buy some Bank of America around 12.50. Bank of America was struggling because of their subprime issues. The stock kept going down. Instead of selling, I kept holding on, which led me to losing a lot of my money.
    Since then I have made some money back, but I still haven't gotten back to that 100k level, my starting capital. I think my problem was taking a lot of risk.
    The butterfly strategy is popular here, so I think I will focus on that. I am obviously not sure how much I need to allocate per trade.
    Do you guys think I need to learn other strategies, or will the butterfly strategy do?
  5. The main problem with option traders is that when the trade goes against them, they become hopeless and let the option expire. You should have more risk in option but say if you buy an option at $1 and it drops to $0.5, you should get out.
  6. I'd say you should try some diversification ~ along with some put buying to offset your calls. On uncovered calls/puts I try to stay 1-2% per stock. No more then 20% in any sector.

    I've done surprisingly well long TZA & EDZ and selling covered calls.

    When the market goes up I keep buying more, and then lowering my strike price. When I get called away I start selling puts.
  7. sonoma


    If you're going to change from directional betting to a more complex trading strategy, I'd suggest you pick up a few good option books and then paper trade for a while. It's not that trading flys is complicated, but multi-leg positions force you to think differently than simply buying leaps for price appreciation. I'm not saying that you can't trade directionally, only that more complex trades require tending.
  8. How much should you invest in any business venture? Enough to make it work, without ruining you life is one answer.

    Treat trading like a business, decisions are much easier that way, IMO.