Money management for Option Trades


Option selling via credit spread using deep OTM strikes is treated as high probabilty trade
Probability of profit making atleast Re 1/- in a trade is very high
Hence I will treat 5% of my trading account as Risk amount(everybody says 1% is ideal-but it reduces my trading size. I am geedy know!)
I have to decide my positional size -lots in my trading account depending on risk amount and maximum loss expected in my trade
The following calculation is only for credit spreads(Sell near strike and Buy a farther strike to pocket premium difference)
Short strike=S
Long strike=L
Premium earned on short strike minus premium paid on long strike = credit C
Maximum loss (M )per lot=((S-L)-C)x Lot size - for Nifty it is 75 per lot
My trading account=T
My risk amount=5% of T=R
Lots I can Trade=R/M-nearest full number

Hope I am clear in my proposal
Please inform me whether my above calculation is correct or not.
Please give your valuable suggestion
My intention is to start trading for living
I hope my above strategy will sustain me in my venture
Last edited:


Well-Known Member
would you be trading in a straddle of credit spreads? (cal credit spread and put credit spread together)
because if it's a single credit spread than the maximum loss you can incur is Rs 100 per lot (if both of your strikes become in the money). Also sometimes farther strike tends to loose premium because of the theta decay. The maximum profit as you have stated is only the premium pocketed. Since the profit is very less than the loss that can be incurred why not just sell deep otm options?

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