>>>At 1 PM ET today, I’ll be joined by my guy, The Income Ace Jack Carter — and we’ll do a full rundown of my simple credit strategy that’s taking the trading world by storm!<<<
Since the launch of my 4PM Payouts strategy, one of the most common questions I get is how to size the credit spreads based on your account size.
The same general rules can apply to whatever credit spreads you’re trading.
It’s an important question, because if you don’t understand how the math works, it’s easy to either over-leverage or undersize to the point that you’re not making what you could be to make your efforts really worth it.
Here’s the simple way I think about it — and how I approach it in my own accounts. This sizing plays across not just my strategy, but you can fit it to yours as well…
SPX vs. XSP: Know Which Product Fits Your Account
In 4PM Payouts, we do simple credit spreads — a vertical spread — trading SPX and XSP, which are S&P 500 index options.
If you have a larger account, or if you’re trading more than 10 contracts, I recommend using SPX. If you’re trading a smaller account, then XSP is a great option.
Let’s say you want to make $200 minimum. That would be two contracts on SPX, or about 10 contracts on XSP. Just keep in mind you’ll pay more in commissions on XSP because you need more contracts to size up the trade.
The key with XSP is to target around 20 to 25 cents of credit. With SPX, I’m usually looking for about a dollar to a dollar 20 per spread. The mechanics are the same — it just comes down to sizing.
Match Your Risk to Your Comfort Level
This is where your personal risk tolerance comes into play. For example, when I showed my Robinhood account in class, I had about $5,000 in it and my Thinkorswim account had about $8,000 in option buying power.
With accounts that size, I’m not loading the boat on any single trade.
In the example I gave, if I risk $400 to make $100 per contract, that’s very manageable. But you need to ask yourself — if the trade goes against you and hits max loss, are you okay with that?
If not, size it down.
If you normally do 10 lots, maybe you cut it to three. If you usually do five lots, maybe do one or two. You can always scale up later as your account grows or as you get more comfortable with the strategy.
The whole point of the spread is defined risk, defined reward. If you take on too much size relative to your account, you defeat the purpose. The goal is to trade with enough size to make it worth your time — but small enough that no single trade can take you out.
That’s how I size it. Simple and repeatable — just how it should be.
Now that you know the deal for sizing, if you haven’t checked out this strategy yet, I’ll be live with the great Jack Carter at 1 p.m. ET to go through everything again.
We’d love to have you join our gang that’s well over 1,000 already!
We couldn’t be more excited about this strategy is going as it takes Wall Street by storm on our little corner!
The team at Lance Ippolito Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
P.S. The 4PM Payout Setup Delivered Nothing But Winners in May
If you couldn’t join in last month, there’s another chance to tag along as we go after these daily cash opportunities in June!
