Many traders open a long list of positions and hope some of them work out. In this segment from Go Ask A Trader, John Locke shares a very different approach. He keeps just one or two main positions, manages them carefully, and relies on options position sizing to control his risk.
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Why One or Two Positions?
John’s main options trades, which he calls his campaign trades, are where he spends his time and energy. He typically has one or two positions open, not seventeen or twenty-five. As he puts it, he’s a big fan of having one position and managing it properly, rather than having many positions and hoping some of them win.
Sometimes his trades overlap. For example, he might be thirty days into a sixty-day trade and put on another sixty-day trade. Even then, he rarely has more than four positions in this category. These are mainly broken wing butterflies or verticals.
Smaller Capital, Higher Return Potential
John prefers going for high returns on smaller capital levels instead of holding a large position with high structural risk for a small return. A large position can carry a lot of risk. When things go bad, they can go really bad, and you have a lot of money on the line.
To do this, he adapts to the most probable price movement and Implied Volatility movement. When he isn’t sure where the market is going, he may start in a different type of position and transition it as the trade develops.
How Options Position Sizing Changes With Your Read of the Market
The other key is varying position size. When John has a good handle on price movement probabilities, he positions larger. When he doesn’t, his positions are small. That can change during a trade. A position that starts small may turn large if a big move brings clarity, and a large position may get smaller if he realizes he doesn’t understand what’s happening.
“I can go out in the snow with my sneakers and I can do okay, but my feet are gonna get wet.”
John Locke
That’s how John describes setting a fixed monthly income goal and trading the same way no matter what. You can do okay, but it’s not the best approach. Ideally, you size larger when your probabilities are good and smaller when you really don’t know.
It Comes With Experience
This kind of decision-making comes from experience, understanding market context and understanding your positions. And it’s fine not to know yet. As John says, he didn’t know for a long time either.
Key Takeaways
- Focus on one or two well-managed positions instead of many.
- A large position aimed at a small return can carry a lot of risk.
- Adapt to the most probable price movement and Implied Volatility.
- Use options position sizing: larger when your read is clear, smaller when it isn’t.
- Understanding market context and your positions comes with experience.
Watch the extended video in our Explore More and Sustain membership on YouTube on this topic.
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Disclaimer: This content is for educational purposes only. We are not broker-dealers or financial advisors and are not making specific trade recommendations. Trading involves substantial risk, and past or hypothetical results do not guarantee future performance.
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