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How to size a position when you sell options

Size every short option by the full amount you've promised: the strike times 100 for each contract. The premium is not the size of the trade. Here's what happens when someone sizes by the premium instead.

Options guide · 9-minute read · Updated 2026-10-27

The short answer

When you sell a put, your position size is the strike × 100 × the number of contracts. That's what you've promised to pay if you're assigned. A $60 put is a $6,000 promise, whether it pays you $50 or $500.

So the rule is simple: size by the full obligation, not the premium. Then set a cap on how much of your account any one stock can take. Those two habits do more for the wheel strategy than any stock pick.

Why the premium fools people

The premium is the number you see. It's the money that lands in your account. So it feels like the trade.

But the premium is the most you can earn. The obligation is what you can lose. On a cash-secured put, the worst case is the strike times 100, minus the premium. Our cash-secured put guide shows every outcome.

In a margin account, there's a second trap. The broker may hold back only part of the strike as Buying power reduction. Your account shows plenty of cash still free. It isn't. If you're assigned, you owe the full strike times 100.

A worked example of sizing by the premium (an illustration, not a trade idea)

You have a $20,000 account. A made-up stock, XYZ, trades at $62. Its 30-day $60 puts pay $1.50 each.

You'd like to collect a few hundred dollars this month. One put pays $150, which feels small. So you sell three, for $450. Your margin account only holds back part of the cash, so it looks like you've used under half your buying power.

Your real obligation: 3 × $60 × 100 = $18,000. That's 90% of the account.

Then XYZ's industry has a rough month. It ends at $45. All three puts are assigned. You now own 300 shares at $60.

There's another cost. Your account only had $20,000. Buying $18,000 of shares left about $2,450 cash, counting the premium. You're stuck with one stock, little cash, and no room to do anything else.

The same trade, sized by the obligation

Now say you'd written a cap first: no single stock above 30% of the account, or $6,000. That allows one $60 put.

With one put, the bad month is about 9% of the account. Painful, but you still have $14,000 free, a plan, and room to act.

A tighter cap, such as 15% or 20%, wouldn't fit a $60 put at all on a $20,000 account. That's useful too. It tells you to look at a cheaper stock, or wait.

How to size any short option

Use these steps for every new put or covered call.

1. Write your cap per stock as a share of the account. Smaller accounts often need a higher cap just to fit one put. Larger accounts can go much lower.
2. Turn the cap into dollars. $20,000 × 30% = $6,000.
3. Work out one contract's obligation. Strike × 100. A $60 put = $6,000.
4. Divide and round down. $6,000 ÷ $6,000 = 1 contract. If the answer is below 1, the stock is too pricey for your cap.
5. Run the bad case. Ask what a 25% drop below the strike would cost. For one $60 put, that's −$1,500 before premium. Would you sit through it calmly?
6. Add it to what you already hold. Shares from an earlier assignment count toward the cap for that stock.

For covered calls, the size is the shares themselves. You already own them, so the cap applies to the 100 shares you hold. The call doesn't add downside; it caps your upside.

Caps beyond one stock

One stock is the first cap. Two more are worth writing down as the account grows:

• Per industry. Three stocks in the same business often fall together. Count them as one. See diversifying a wheel portfolio.
• Total promised. Add up every open put's strike × 100, plus shares held. That total should never be more than your cash, if you're running cash-secured. See keeping cash aside for assignment.

Our page on how many contracts to sell turns this into a simple rule for beginners. For a large account, see the wheel with $100,000.

A note on accounts. In the US, IRAs and cash accounts usually hold the full strike for a put, which makes this sizing automatic. In Canada, covered calls are widely allowed in a TFSA or RRSP, while cash-secured puts depend on the broker. Options permissions differ by broker, and margin accounts anywhere may show more "free" cash than you really have.

The rule for next time

Write the obligation next to the premium on every trade. "Collected $150, promised $6,000." Seeing both numbers side by side stops the premium from setting the size. If the promised number is bigger than your cap, the trade is too big, no matter how good the premium looks.

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