Why I Don’t Give You a Hard Position Sizing Rule
Real trades. Real money. A seven-figure wheel portfolio — documented live.
Most options educators give you a clean rule. Never risk more than 5% per position. Never put more than 10% of your account in a single trade.
It sounds disciplined. It looks good on a slide deck.
It breaks down the moment you try to apply it to a real account.
──────────────────────────────────────────────────────
The Problem With Hard Rules
Here is the issue. Cash-secured puts have collateral requirements. If you sell a put on a $115 stock, you need $11,500 in your account to back that trade. That is not negotiable. That is the math.
On a $30,000 account, one position just ate 38% of your capital. The 5% rule is already dead.
On a $200,000 account, that same position is 5.75%. Manageable.
On a seven-figure account, it is a rounding error.
The rule does not scale. The principle behind it does.
──────────────────────────────────────────────────────
The Principle That Actually Matters
The goal of position sizing is simple: no single trade should be able to seriously damage your account.
Not just hurt it. Seriously damage it. Force a bad decision. Make you panic. Take you out of the game.
That is it. Everything else is just math in service of that goal.
Here is how I think about it in practice:
Be cognizant of sector concentration. If you already have a position in consumer staples, think twice before adding another one in the same week. That does not mean you can never have two positions in the same sector — sometimes a sector is where the best setups are. It means you should know when you are concentrated and make that a deliberate choice, not an accident.
Never double up on the same name. One position per stock. If I already have a covered call on AMD, I am not selling a put on AMD at the same time. Concentration in a single ticker is how you get hurt.
Keep dry powder. I always want cash sitting on the sidelines. Not because I am afraid to deploy it — because I want the ability to act when something interesting appears without being forced to close something else first. Idle cash is not a mistake. It is optionality.
Let the position size fit the account. If you are running a smaller account, you might only be able to run two or three positions at a time. That is fine. Two well-chosen positions are better than eight bad ones. And before you place any trade, make sure you have the capital to handle assignment — if you sell a put on a $40 stock and get assigned, you now own 100 shares at $4,000. That needs to be money you were prepared to spend.
One way to manage collateral on a smaller account is to focus on quality companies with lower share prices. A $40 stock requires $4,000 in collateral versus $11,500 for WMT. That is a meaningful difference when capital is limited. The key: a lower price does not mean a better trade. The stock still has to pass every other criteria — liquidity, IV rank, trend, earnings timing. Price is just one lever you can pull.
──────────────────────────────────────────────────────
What This Looks Like on a Real Trade
This week I sold a put on WMT at the $115 strike, expiring May 15.
WMT is trading at $125. That gives me over 8% cushion before I am even at risk. The collateral requirement is $11,500. The premium I collected covers roughly 1.8% of that collateral for the cycle.
Is $11,500 a lot? Depends entirely on your account size.
On my account, this is a small position — one piece of a diversified portfolio spread across multiple sectors.
On a $25,000 account, this is nearly half your capital. You would need to think carefully about whether this is the right trade, the right size, or whether a different stock with lower collateral requirements fits better.
The trade itself is the same. The decision around it is not.
──────────────────────────────────────────────────────
The Small Account Reality
I want to be honest about something most educators skip.
Small accounts are genuinely harder to run with the wheel strategy. The collateral requirements limit how diversified you can be. One or two bad positions can dominate your P&L in a way they never would on a larger account.
This does not mean the strategy does not work at smaller sizes. It means you have to be more selective. Fewer trades, higher quality setups, more patience. You cannot afford to force entries just to feel deployed.
The upside: the skills you build on a small account transfer directly to a larger one. The discipline required to run two positions well is the same discipline required to run twenty.
──────────────────────────────────────────────────────
Where Sizing Gets Easier
As your account grows, the math gets friendlier. You can spread across more positions, more sectors, more expiration cycles. No single position dominates. The portfolio starts to behave more like a system than a collection of individual bets.
That is the goal. Get there one cycle at a time.
──────────────────────────────────────────────────────
Next issue I will walk through some of the factors I weigh before entering any position — a way of thinking about setups that keeps bad trades out of the portfolio before they start.
Because knowing how to size a trade is only useful if you are picking the right trades to size in the first place.
If this resonated, forward it to someone who trades options. They will appreciate the honesty.
Until next time, keep the wheel turning.
— Keith
──────────────────────────────────────────────────────
The Income Wheel | theincomewheel.com
Every Monday. Real trades, real numbers, no fluff.
Nothing in this newsletter is financial advice. I am documenting how I personally trade — not telling you what to do with your money.