Risk & Position Sizing
The traders who blow up aren't the ones who pick wrong — they're the ones who bet too big. This lesson is about not betting the farm on any single trade. The rule of thumb: risk only a tiny slice of your money each time, and always plan for the worst day, not the average one.
Strategy selection gets the headlines, but survival is decided by risk management and position sizing. The traders who last are the ones who size for the worst day.
Margins for option selling
Buying options costs only the premium. Selling options requires margin — the exchange’s estimate (via SPAN + exposure) of the worst plausible one-day loss. On NIFTY a single short straddle can block ₹1.5–2 lakh of margin. Undercapitalised sellers get force-closed at the worst possible moment; always know your margin and keep a buffer.
Position sizing: the 1–2% rule
Never risk more than a small fraction (commonly 1–2%) of your capital on a single trade’s maximum loss. For defined-risk structures, max loss is known up front, so sizing is arithmetic. For undefined-risk positions you must use a stop or a scenario loss — and size as if the stop fails on a gap.
The tail will come
Option sellers earn small, frequent profits, which builds dangerous confidence. Then a gap move (a circuit, a global shock, a Budget surprise) delivers a loss many times the average win. Iron condors and stop-losses exist to cap exactly this. Size assuming the tail event happens while you hold the position.
Costs compound
Every trade pays STT, exchange, GST, stamp and brokerage. A strategy with a thin per-trade edge can be turned net-negative by costs across hundreds of trades. Always evaluate net of costs (the Cost Calculator shows the bite), and prefer fewer, higher-conviction trades over churning.