Position sizing is the difference between a sustainable income strategy and a blown-up account. Most put sellers focus on strike selection and ignore allocation — until one bad trade wipes out months of premium. Here's how to size correctly.

The Basic Formula

For any single cash secured put position, the maximum capital commitment is:

Position Size = Strike Price × 100 shares

A $90 strike put requires $9,000 in cash collateral. But the question isn't how much capital one put requires — it's what percentage of your total portfolio should be in any single position.

The 5% Rule

A widely-used guideline: no single cash secured put should represent more than 5% of your total portfolio value. For a $100,000 portfolio, that's $5,000 maximum per position.

This limits your choices. At $5,000 per position, you're looking at stocks under $50:

| Max Position Size | Stock Price Range | Example Stocks | $5,000$30-$50F, INTC, PLTR, SOFI $10,000$50-$100AMD, DIS, KO, PFE $20,000$100-$200AAPL, NVDA, JPM, GOOGL | $40,000 | $200-$400 | MSFT, MA, COST |

With a $100,000 portfolio and a 5% rule, you can sell puts on stocks up to $50. With a 10% rule (more aggressive), you can reach the $100 level. With a 20% maximum (aggressive for single stocks), the $200 tier opens up.

Portfolio-Level Allocation

Position sizing isn't just about individual trades. You need a framework for the total portfolio:

Total capital deployed in CSPs: Most advisors recommend keeping 60-80% of your portfolio committed to open put positions at any given time, with 20-40% in cash or short-term treasuries as a reserve.

Why not 100%? Because:

  • You need cash to roll losing positions down and out (rolling requires additional collateral temporarily)
  • Opportunities arise after market selloffs when you want to sell puts at elevated IV
  • A margin call on the entire portfolio is catastrophic

    • Example $100,000 portfolio allocation:

    | Allocation | Amount | Purpose | Active CSP positions$65,0006-8 open positions Cash reserve$20,000Rolling and new opportunities | Treasury bills | $15,000 | Earning yield on idle capital |

    Calculating Maximum Loss per Position

    Your position size should be based on the maximum loss you can tolerate, not the collateral required. The maximum loss on a cash secured put is the strike price minus the premium received (if the stock goes to zero), but the realistic worst case for quality stocks is a 30-50% drawdown.

    Realistic max loss formula:

    Max Loss = (Strike Price × 100) × Expected Max Drawdown - Premium Received

    For a $100 strike put on a blue chip stock with a $3.00 premium:

  • Collateral: $10,000
  • Expected max drawdown: 30%
  • Realistic max loss: ($10,000 × 0.30) - $300 = $2,700
  • As a percentage of $100,000 portfolio: 2.7%

    • If you're comfortable losing up to 3% of your portfolio on any single position, this trade fits.

    Sector Diversification Rules

    Position sizing goes beyond individual stocks. You need to limit sector concentration:

  • Maximum 25% in any single sector: If you're selling puts on AAPL, MSFT, NVDA, and GOOGL, that's all technology. Cap it.
  • Maximum 15% in correlated positions: Bank stocks (JPM, BAC, GS) all move together. Treat them as one position for risk purposes.
  • Mix cyclical and defensive: Combine tech and financials with healthcare, consumer staples, and utilities for balance.

    • Common Sizing Mistakes

    Mistake 1: Sizing based on premium, not risk. Selling 5 puts on a volatile stock because the premium is amazing. If the stock drops 20%, all five positions lose simultaneously.

    Mistake 2: Ignoring correlation. Selling puts on AAPL, MSFT, GOOGL, META, and AMZN gives you five positions — but in a tech selloff, they all move together. You effectively have one giant tech position.

    Mistake 3: No cash reserve. Deploying 100% of capital into CSPs. When three positions need to be rolled simultaneously, you don't have the margin.

    Mistake 4: Scaling up after wins. Three good months doesn't mean you should double your position sizes. The market can humble you in a single week.

    A Position Size Calculator

    For a $100,000 portfolio with moderate risk tolerance:

  • Max per position: 10% = $10,000 (stocks up to ~$100)
  • Max per sector: 25% = $25,000 (2-3 positions per sector)
  • Total deployed: 70% = $70,000 (7-10 positions)
  • Cash reserve: 20% = $20,000
  • Yield reserve: 10% = $10,000 (T-bills or money market)

    • OptionsPilot's portfolio tracker automatically calculates your sector exposure and position concentration, flagging when you're overweight in any area. This takes the guesswork out of the allocation decisions that matter most.

    Bottom Line

    Size positions so that your worst realistic loss on any single trade is 2-3% of your total portfolio. Diversify across sectors, maintain a cash reserve, and resist the urge to scale up during winning streaks. Good sizing won't make you rich, but bad sizing can make you poor.