Sizing discipline

Position sizing and risk budgeting

A professional-looking thesis can still be a poor portfolio decision if the loss would damage the account or force emotional decisions.

Simple thresholds used by the tool

The scorer rewards risk that is small relative to portfolio size and penalizes risk that exceeds practical budget ranges. It also distinguishes maximum loss from capital committed, because some structures tie up much more capital than they initially risk.

Portfolio riskMax loss / portfolio size
Capital committedCapital committed / portfolio size
Stress lossMax loss plus liquidity/correlation buffer

Primary reading: Investor.gov risk tolerance overview · FINRA options overview and risk · SEC Investor Bulletin on options · OIC options pricing overview · OCC Options Disclosure Document

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Related lessons and tools on this site

Start with the main guideInstitutional-Style Trade Logic TestComplete Scoring Formula and MethodologyExpected Value in Trade ReviewCorrelation and Concentration RiskLiquidity and Execution QualityVolatility and Market-Regime FitCatalyst and Timing QualityExit Plan and Invalidation ChecklistTrade Logic Score ExamplesTrade Logic Test FAQSources and Methodology for Trade Logic Test
Reviewed/updated 2026-07-30 · SourcesMethodologyRisk disclosureCorrections

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