Compare
| Risk Rule | Guideline | Why |
|---|---|---|
| Position size | Max 2–5% of portfolio per trade | No single trade should threaten the portfolio |
| Portfolio delta | Keep net delta within target range | Prevents accidental directional bet |
| Correlation risk | Avoid concentrated sector exposure | 5 ‘different’ trades in the same sector = 1 big bet |
| Theta budget | Know your daily theta income/cost | Ensures time decay works for, not against you |
| Tail risk | Define max loss for every position | Spreads > naked options for risk definition |
Key point
The #1 risk management rule: define max loss before entry. If you can’t state your max loss in dollars, you don’t understand your position. Use spreads instead of naked options to enforce defined risk.
Try it
Review your current positions (if any). Calculate your net delta, total theta, and maximum loss per position. Are you comfortable with the worst-case scenario?
Check-in
You have 5 iron condors on 5 different stocks, each risking $500. A broad market selloff hits. What’s your actual risk?
Key insight
Check-in
Portfolio manager has $5M allocated to options positions. Gamma exposure: +$200K per 1% move. Vega: +$50K per 1 IV point. What's the RISK concentration?
Check your understanding
Sit with the ideas.
Your options portfolio has: net delta +150, net theta -$50, net vega +$200. What market scenario hurts you the most?
Why: