Course · Act III: Theta Gang · Chapter 13
Options position sizing and expected value
Break-even win rates, expected value, what paying the ask costs, why a streak of losses ruins a large position and not a small one, and the gain it takes to climb out of a drawdown.
Key terms
- Break-even win rate
- How often a trade must win to break even: max loss ÷ (max gain + max loss).
- Expected value
- The average result if a trade were repeated many times: P(win) × win − P(loss) × loss.
- Position sizing
- Choosing how much of the account a trade can lose, measured at its max loss.
- Drawdown
- How far an account has fallen from its high. A 50% drawdown needs a 100% gain to recover.
“Size, Odds, and Ruin” is part of the full course: 6 puzzles on options position sizing and expected value. RocketCo is fictional, and none of this is a trade. Try this act’s free chapter, “Covered Calls”, first.
“Size, Odds, and Ruin” is in Act III: Theta Gang. 6 puzzles, unlimited retries.
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