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Why Size Is Everything When Managing Risk in Options Trades

by | Nov 19, 2021

We’ve seen some wicked price action in these low-volume, low-volatility stock markets. 

For the past several sessions, nearly all of the action is at the open… 

We see prices spike, only for that volume to dry up and shares to fall back down almost immediately. 

On top of that, market makers are crushing volatility — especially for downside bets. 

I’m not going to lie… This is a tough time for trading options. 

Markets like this are why I always preach managing risk on earnings options trades — particularly when it comes to position sizing. 

That type of disciplined decision-making can help traders get ahead and stay there, especially when markets get choppy — like it did for my Weekly Blitz Alerts strategy earlier this week. 

How toManage Risk on Earnings Options Trades With Position Sizing

On Tuesday, my Blitz Tracker spotted sizable order flow into Canadian Solar Inc. (Nasdaq: CSIQ). Big traders aggressively bought Nov. 26 $40 strike calls — around 800 contracts for more than $150,000 in premium ahead of Thursday’s earnings report.  

In the alert, I suggested to Blitz members this should be a mid-sized trade, or around 5% of the trading account to manage risk on this earnings call option.

CSIQ crushed consensus estimates, spiking share prices by 4% and powering the options to a quick two-day gain of 38.89% — BANG! 

Then on Wednesday, big trades on Sonos Inc. (Nasdaq: SONO) earnings hit the Tracker.  

With market makers implying around a 14% move higher or lower for the earnings event that night, a massive bet hit the tape… And bearish traders grabbed more than 7,400 of the Nov. 19 $31 put options.  

Since it was a bearish earnings play, the Blitz strategy suggestion is to keep positions small — about 2% of an account instead of the 5% on a bullish play. 

While we did get the direction we wanted, the nearly 4% drop in share price wasn’t enough to move the needle on those $31 puts… 

But this is where managing risk through position sizing saved my bacon for this earnings options trade! Check out the short video below and I’ll show you how it all panned out.  

P.S. Anyone placing trades during the week may actually be stacking the cards against themselves…

Look, every week, thousands of headlines like earnings or bad news out of the Federal Reserve or China wreck what may seem to be perfectly good trade setups. 

So instead of traders risking their hard-earned cash during the meat of the week, there’s a simple Friday afternoon strategy that is able to skip all of the madness…

It taps into some of the most reliable forces in the market, already giving direct access to trade gains like 90% on ZNGA… 96% on INTC… and even 610% on CRSR!

Learn How It Works 

WRITTEN BY<br>Lance Ippolito

Lance Ippolito

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