Most options advice is about picking the trade. The question that decides whether you are still trading in a year is how big to make it. Two traders can take the identical setup; one risks 2% of their account and shrugs off a loss, and the other risks 25% and has to start over. This guide gives you a repeatable way to answer “how many contracts?” before you click buy. ...
Credit Spread vs Debit Spread: When to Use Each Both credit spreads and debit spreads are vertical spreads — you buy one option and sell another option of the same type (both calls or both puts) on the same underlying, with the same expiration but different strikes. The strategies look almost identical on paper. The difference that actually matters comes down to one question: do you collect cash when you open the trade, or do you pay it? ...
How to Calculate Max Loss and Max Profit on a Credit Spread A credit spread is a defined-risk options strategy where you sell one option and buy a further out-of-the-money option of the same type and expiration, collecting a net credit for the difference. Because both max profit and max loss are capped, the math is straightforward once you know the formulas — but the breakeven direction flips depending on whether you’re trading a put spread or a call spread, which trips up a lot of newer traders. This guide covers both. ...
Most blown-up options accounts did not pick bad trades so much as they traded too big. This calculator works out the largest position that stays inside two limits you set in advance: how much of your account one trade is allowed to lose, and how much capital one position is allowed to tie up. Everything runs in your browser; nothing is sent anywhere. How to use it Pick the trade type. Set your limits: account size, the percentage of the account you are willing to lose on a single trade, and the most capital you want in any one position. Many traders start with 1% to 2% risk per trade. Enter the trade: the debit paid, the spread width and credit, the put strike, premium and stop, or the stock entry and stop. Read the suggested size. It is the smaller of what the risk budget allows and what the position limit allows, rounded down. Rounding down is deliberate: it keeps you under your limit rather than slightly over it. How each trade type is measured Long option or debit spread. The most you can lose is the debit you pay, so risk and capital are the same number: debit times 100 per contract. ...