There are two ways to decide how big to trade: a fixed number of contracts (“always 5”) or a fixed dollar risk (“always risk $100”). They sound similar; they produce completely different risk profiles. For scalping, fixed-dollar-risk is the professional default.
Why fixed-contract sizing fails
“Always 5 contracts” ignores the stop. A trade with a $0.20 stop and a trade with a $0.80 stop, both at 5 contracts, risk $100 and $400 respectively — the same “size” taking 4× the risk. Your risk swings randomly with the stop distance and the option's price, so a “normal” loss on a wide-stop trade can be four times a normal loss on a tight one. It feels consistent and isn't.
Why fixed-dollar-risk wins
Fixed-dollar-risk flips it: you decide the dollars first (your 1%), then solve for contracts so the stop-loss equals that number. A tight-stop trade gets more contracts, a wide-stop trade gets fewer, and every trade risks the same amount. That consistency is what makes a track record meaningful and a losing streak survivable — it's the same idea as thinking in R.
Fixed contracts holds the number constant and lets the risk vary. Fixed-dollar-risk holds the risk constant and lets the number vary. Only one of those is risk management.
The one caveat
Fixed-dollar sizing can occasionally call for more contracts than a strike can liquidly absorb (on a very tight stop) — cap size at what fills cleanly. And on a very small account, the math may round to one contract regardless. Within those limits, size by risk, not by habit — the position-size calculator does the arithmetic for you.
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NoVo is a software tool for market analysis, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.
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