Sizing, Liquidity, and the Costs Nobody Mentions

The only honest size question: if this position hits its maximum loss, does it matter to my finances? For long options and debit spreads the max loss is the cost; for credit structures it's the fenced width; for short stock-secured trades it's the stock itself. Decide the acceptable worst case FIRST, then let that number pick your size. Never the other way around.

One contract still speaks for 100 shares, so a $95 cash-secured put wants $9,500 reserved — real money. Defined-risk spreads exist partly for this reason: they express the same views with a strictly bounded commitment. What a small account must never do is 'afford' options by dropping the discipline and going naked. Constraint is a guardrail, not an insult.

You learned to see the bid-ask gap in Unit 1; now respect it as a cost. Cross a wide spread entering and exiting and you can surrender a meaningful slice of the whole trade to the toll booth — before the stock has done anything. Busy strikes on busy names have tight spreads. Ghost towns are expensive everywhere except the commission line.

Every adjustment, roll, and re-entry pays the toll again — and options offer infinite invitations to fiddle. You've seen where this school stands: a plan decided in advance beats a plan renegotiated nightly. If a position needs constant management to survive, the problem is usually the position, not the management. Fees and taxes vary by broker and situation; the habit of trading less is valuable everywhere.

One more behavior-gap defense: never let options P&L and investing P&L blur into one story. The disciplined structures from Unit 2 belong beside your long-term holdings; anything from the zoo belongs in a small, sealed, honestly-labeled experiment budget. Blurring the two is how one loud week rewrites a quiet year.