Discussion in 'Options' started by a529612, Jan 4, 2007.
How much equity % do you risk for long options per trade?
2% of bank.
Size doesn't matter.
Who said so?
Helen, you rascal!
I am not sure this answers your question directly but I can tell you that a rule of thumb we use is to never risk more than 1 months profit per day.
So, if you make $10,000 per year, we would never have a position on that exposes us to more than an $833 loss in one day.
That said, I have personally increased that amount by as much as 20%. In the case above that would increase my exposure to $1,000. (For me to do this I have to have a significant lead on a trade).
So how much would you risk if you have no profits or a loss for the year?
We do it on a rolling 12 months and not on a calendar year basis.
The closest we have to someone in the position you describe is someone I have started training. I just looked at his position and he has about 5% of his account at risk.
Thanks for the reply Tower.
That's an impressive statistic. Please correct me if I'm wrong but you seem to be saying that the traders you know/train generally become profitable within the first month or two of starting their trading, the exception being this chap with a current 5% acct risk?
I agree it would be quite impressive if the guys we worked with were profitable within the first sixty days. Sadly, that is not the case - or even close to it.
Where I work about 1 in 15 options traders survive the first year. As I recall, I started making money after six months. I would be thrilled if the guy I am working with was at scratch after a year.
The posts I read in this forum seem to indicate far more aggressive schedules to profitability. I believe there may be two reasons for this: first, they are probably more selective on the trades they make early in their careers than we tend to be and second, they may be calling a profitable trade one in which they simply sell their option for a higher price than they bought it. This, of course, excludes transaction costs as well as the money lost on the hedge.
Alternatively, they just may be smarter than the guys I work with.
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