Options Trading

9.

Risk Management in Options Trading

9.1.

Position Sizing Principles

9.1.1.

Calculating Position Size

9.1.1.1.

Fixed Dollar Amount

9.1.1.2.

Percentage of Portfolio

9.1.1.3.

Volatility-Based Sizing

9.1.2.

Impact on Portfolio Risk

9.1.3.

Correlation Considerations

9.2.

Risk Assessment Before Trading

9.2.1.

Defining Maximum Risk

9.2.2.

Setting Stop-Loss Levels

9.2.3.

Risk/Reward Ratios

9.2.4.

Probability Analysis

9.3.

Portfolio Risk Management

9.3.1.

Portfolio Diversification

9.3.1.1.

Diversifying Across Underlyings

9.3.1.2.

Diversifying Across Strategies

9.3.1.3.

Diversifying Across Time

9.3.2.

Correlation Risk

9.3.3.

Concentration Limits

9.4.

Hedging Strategies

9.4.1.

Using Options to Hedge Portfolios

9.4.1.1.

Protective Puts

9.4.1.2.

Protective Collars

9.4.1.3.

Hedging with Index Options

9.4.2.

Dynamic Hedging

9.4.2.1.

9.4.2.2.

9.4.2.3.

9.5.

Margin and Capital Management

9.5.1.

Understanding Margin Requirements

9.5.2.

9.5.3.

Capital Allocation

9.5.4.

Leverage Management

9.6.

Trading Psychology and Discipline

9.6.1.

Emotional Control

9.6.1.1.

9.6.1.2.

Discipline and Patience

9.6.2.

Common Behavioral Biases

9.6.2.1.

9.6.2.2.

9.6.2.3.

9.6.2.4.

Confirmation Bias

9.6.3.

Developing a Trading Plan

9.6.3.1.

Strategy Selection

9.6.3.2.

Entry and Exit Rules

9.6.3.3.

Risk Management Rules

9.6.4.

Record Keeping and Analysis

9.6.4.1.

9.6.4.2.

Performance Analysis

9.6.4.3.

Learning from Mistakes

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10. Special Topics in Options