Trading Capital Allocations

This is a hypothetical example of allocations that conservative options traders might consider:

1) Total Investments: $1,000,000 (IRA’s, Mutual Funds, 401K’s)

2) 10% Amount Allocated to Credit Spread Trading: $100,000

3) 65% of my Credit Spread Trading Account Allocated to new trades each month: $65,000

4) 35% of my Credit Spread Trading Account Account kept in reserve for possible adjustments: $35,000

September NDX and RUT Trades - Allocation of $65,000:

77% to NDX 25 point Bull Put Trade (20 contracts): $50,000 (77% of 65,000)
23% to RUT 10 point Iron Condor Trade (15 contracts: $15,000 (23% of 65,000)

I place all my new orders on the Saturday following expiration Friday. So I would have placed and order for 20 NDX 25 point contracts and 15 RUT 10 point contracts.

The percentages above are averages but very close to my actual experience. Some months when I feel the markets are trading in a more neutral pattern I will use 80-90% of Credit Spread account for new trades. I also use 10% of my collected credits to hedge my trades. I like buying QQQQ or SPY short term puts and calls for $1 to $2 per contact for insurance in case the market crashes or increases by 10% quickly.