Position sizing for option sellers
A short put commits you to buying 100 shares at the strike, so its worst case is the strike times 100 and nothing smaller. That makes the sizing rules people bring from stock trading unusable: a 2 percent max-loss limit on a $50,000 account permits no contract on any of six ordinary names. The rule that works sizes to a plausible decline instead of to zero.
Every sizing rule is an answer to "how much can this position cost me." Short options make that question harder than it looks, because the honest answer is a number nobody plans around.
The account this cluster follows
$50,000 in a cash account. Six names, one contract each, cash-secured puts sold about 0.22 delta with 46 days to run.
| Ticker | Sector | Stock | Put strike | Credit | Cash secured | Share of the account |
|---|---|---|---|---|---|---|
| AMD | Semiconductors | $118.00 | $106 | $252 | $10,600 | 21.2% |
| MU | Semiconductors | $92.00 | $83 | $177 | $8,300 | 16.6% |
| INTC | Semiconductors | $23.40 | $21.50 | $46 | $2,150 | 4.3% |
| KMI | Energy | $27.60 | $26 | $35 | $2,600 | 5.2% |
| T | Telecom | $22.50 | $21 | $20 | $2,100 | 4.2% |
| WBD | Media | $11.40 | $10.50 | $16 | $1,050 | 2.1% |
| Total | 6 names | $546 | $26,800 | 53.6% |
$26,800 committed, $23,200 idle. That already looks conservative. Watch what three standard sizing rules say about it.
Rule A: no position may lose more than 2 percent of the account
This is the rule every stock trading book teaches, and on a stock it works, because a stock trader pairs it with a stop loss. The 2 percent is the distance to the stop, not the distance to zero.
A short put has no stop. You are contractually obliged to buy at the strike, so the maximum loss is the strike times 100 less the credit, reached if the company goes to zero.
| Ticker | Max loss, one contract | A: max loss under $1,000 | B: secured cash under $5,000 | C: loss on a 25% decline under $2,500 |
|---|---|---|---|---|
| AMD | $10,348 | 0 | 0 | 1 |
| MU | $8,123 | 0 | 0 | 2 |
| INTC | $2,104 | 0 | 2 | 7 |
| KMI | $2,565 | 0 | 1 | 5 |
| T | $2,080 | 0 | 2 | 6 |
| WBD | $1,034 | 0 | 4 | 13 |
Zero, six times. Rule A does not permit a cash-secured put on a $10 stock in a $50,000 account.
That is not the rule being strict. That is the rule being asked a question it cannot answer. Applied literally to short options it forbids the strategy, and applied loosely it means nothing, so people quietly drop it and size by feel. Which is how books like the one above get built.
Rule B: no position may tie up more than 10 percent of the account
Better, and it is the rule the app's position size calculator runs on, because it is the constraint a cash account actually enforces. $5,000 per position on $50,000.
Note what it does to the two expensive names. AMD needs $10,600 of collateral and MU $8,300, so rule B says you cannot sell either. The book above breaks its own rule twice before the first cycle ends.
This is the honest reason most retail premium sellers own a portfolio of cheap stocks. Not conviction. Contract size. A 100-share lot of a $120 stock is $12,000, and there is no such thing as selling half a contract.
Rule C: no position may lose more than 5 percent of the account on a 25 percent decline
This one is different in kind. It stops asking about the worst case and asks about a bad case you can actually picture.
Take AMD. Stock $118, short the $106 put, $252 credit. A 25 percent decline puts the stock at $88.50. You get assigned at $106, the shares are worth $88.50, and the loss is $1,498 after the credit. Against a $2,500 limit, one contract fits and two do not.
Run it across the book and the total exposure to a simultaneous 25 percent decline in all six names is $4,136, or 8.3 percent of the account. That is a number you can hold in your head, plan a year around, and survive.
Compare it to the same book's theoretical maximum loss: $26,254, or 52.5 percent. Both numbers are true. Only one of them is useful, and it is not the one in the textbook.
What actually happened to this book
Cycle 3. AMD fell 23.8 percent in 46 days, MU 23.5 percent, INTC 21.0 percent, WBD 15.3 percent, KMI 6.8 percent. Five of the six positions were assigned in the same six weeks and the paper loss across them was $2,902.
Rule C predicted $4,136 for a 25 percent hit on everything. The real move was smaller than that on three names and the real damage was $2,902. The rule was in the right neighbourhood, which is the most you should ask of a sizing rule.
Rule A would have predicted $26,254 and stopped you trading. Rule B would have told you the position sizes were legal right up until five of them assigned at once, which is the thing rule B cannot see.
The rule to actually write down
Two limits, not one.
- Per position: a 25 percent decline in that name costs no more than 5 percent of the account. This sets the contract count.
- Per book: a 25 percent decline in everything at once costs no more than 15 percent of the account. This sets how many positions you may hold, and it is the limit people skip.
The book above passes the first and passes the second at 8.3 percent. It still had a rough quarter, because five assignments in one cycle is unpleasant even when it is affordable. Affordable is the whole objective. A drawdown you can sit through is a drawdown that does not turn into a decision you regret.
OptionsKing scores every candidate strike on a deterministic 0 to 100 scale, blends that score with the return on the capital the trade ties up, and shows you the highest-ranked handful. There is no minimum score. How it works covers what the ranking does and does not tell you.
Questions people actually ask
How many option contracts should I sell at once?
Size so that a 25 percent decline in one name costs no more than about 5 percent of the account, and so that a 25 percent decline in everything at once costs no more than about 15 percent. On a worked $50,000 book of six names, that permitted one contract on the $118 stock and thirteen on the $10 one.
Does the 2 percent risk rule work for selling puts?
No. It assumes a stop loss, and a short put has none: the maximum loss is the strike times 100. Applied literally to a $50,000 account it permits zero contracts on every one of six ordinary names, including a $10 stock.
What is the maximum loss on a cash-secured put?
The strike times 100 less the credit, reached if the stock goes to zero. On a $106 put sold for $2.52 that is $10,348. It is a real number and a useless planning number, which is why sizing should run off a plausible decline instead.
Why do small accounts end up selling puts on cheap stocks?
Contract size, not conviction. One contract on a $120 stock secures $12,000, which is a quarter of a $50,000 account, and you cannot sell a fraction of a contract. A 10 percent per-position limit rules out most expensive names outright.
Sources
Rules and thresholds above were checked against these documents on August 4, 2026. Exchange and broker rules change. Confirm anything you are about to act on with your own broker.
Keep reading
Do the math on your own trade
Every price in this article is an illustrative worked example, not a quote. Read Running the book for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.