Free lessons › Options Mastery › Risk & Execution
Sizing and exit rules for options
Premium-at-risk sizing, profit targets, stops and earnings rules.
12 min · Beginner
What you'll learn
- Calculate position size so full premium or debit at risk is at most 1% of the account
- Apply stock-based exit rules for invalidation, targets and time stops
- Apply an earnings rule to long options and debit spreads
Key takeaways
- Contracts = 1% of account divided by (premium or debit x 100), always rounded down.
- If the result is zero, change the structure or skip the trade.
- Exit on stock signals: invalidation close, next-level target or time stop.
- Close or reduce long premium before earnings unless the trade was planned and sized for the event.
- Write every exit rule before entry and do not change it mid-trade.
Glossary
- Risk budget — The most you allow yourself to lose on one trade, here 1% of the account.
- Earnings rule — A pre-set rule for whether to close, reduce or hold an options position before an earnings report.
- Scaling out — Selling part of a position at a first target and managing the rest separately.
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