#117 - How Many Shares or Option Contracts Should You Trade First?
Hey everyone, Kirk here again and welcome back to the daily call. On today's show, I want to answer the question, “How many shares or option contracts should you trade first?” I think this is a common question. It’s probably a very simple beginner question that we get often which is like basically, “How big of a position size should I make on my first couple of trades?” I think in either case, whether you're starting out or whether you’ve been doing it for awhile, I think all of your trades should generally be small. When you’re first starting out, when you’re really getting your feet wet, trying to understand options trading or stock trading, I think your first couple of trades should be one share or one option contract, literally one contract. Now yes, that means that in some cases, it might not be as advantageous for commissions because maybe your broker deliberately has a commission structure set up, so that you trade more contracts which is a cheaper commission, but don't get sucked into that initially, don't get duped into doing that. What you want to do as you get started is you want to trade a small number of contracts, so that you get familiar with the consistency and the framework and the flow. What we used to do actually… I relate this to football a little bit. When I played football in college, what our coach used to do every week as we were learning new plays and we had a new game plan is we would do what’s called a walkthrough. A walkthrough is nothing more than literally walking through the play that you're about to do. If we learn a new play, we had new assignments, etcetera, we would literally walk through it multiple times and in fact, our coach would get mad if somebody jogged through it. He’d say, “Look. It’s a walkthrough. It’s not a jog-through.” Because eventually, we’re going to play this at high speeds, so we’re going to be running and tackling and blocking, etcetera. And so, we’re going to play it at high speeds, but you can’t play high speeds unless you first learn to walk slowly. And so, we’d walk through lots of plays, we’d walk through lots of setups and we do this over and over and over again at nausea because we needed to get the fundamentals down first and I think that that’s how you should approach options trading or stock trading. Trade one share, one contract and do that for a little while until you really get the fundamentals down and then at that point, you can start to scale up. But at no point should you ever really be scaling beyond 5% per position size. That’s what we say, 1% to 5% risk sizing per trade, per ticker symbol. Don’t ever scale up beyond that. Still keep everything really, really small. As always, hopefully you guys enjoy these. If you have any questions, let us know. Again, this is first come, first serve for many of these things that we do here on the daily call, so if you have not gotten your question in, please go ahead and submit it over at optionalpha.com/ask or send us a tweet, send me a Facebook message, however you want to get in contact with me, a letter. We’ve had people do that before in the past. That’s cool too. Whatever you want to do, get your questions in. Don’t let them go unanswered because we’re trying to help you guys out. Until next time, happy trading!
