Position Sizing for Options Traders
Position size is a calculation derived from invalidation distance, and never a reflection of how strongly a trader feels about the setup.
How should an options trader size a position?
Fix the acceptable loss per trade as a small percentage of account equity, measure the distance from entry to invalidation, then derive the position size from those two numbers. Conviction never enters the calculation, because conviction is uncorrelated with realised outcomes.
Why does sizing matter more than entry quality?
A trader with mediocre entries and disciplined sizing survives long enough to improve, while a trader with excellent entries and undisciplined sizing is removed by the first cluster of losses. Survival is the precondition for every other skill compounding over time.
How does the Obsidian desk handle a losing streak?
The Obsidian desk reduces size after consecutive losses rather than increasing size to recover the drawdown. Cutting size preserves the ability to participate when conditions improve, while increasing size during a losing streak is how accounts end rather than recover.