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Key Concepts

Scaling

Scaling refers to the adaptation of a growing or shrinking account, which ensures we are using our capital effectively and wisely. We may change our size and take on more risk when our account grows, and we will continue to primarily sell premium.

At tastytrade, we scale in a variety of different ways. We prefer to scale by widening our strike widths in defined risk trades, adding more positions, and using more undefined risk strategies. We can also add duration, as well as trade new products in our portfolio. We do not believe that scaling should only refer to increasing or decreasing the size of the trades we place.

If we have defined risk trades, we may widen the width of our wings as opposed to adding contracts. This increases the credit we receive and increases our probability of profit, while maintaining the same amount of contracts. If we want to scale even more, we may consider moving further OTM and trading naked options.

It is important to remember that scaling goes both ways. If we have a bad run and our account is greatly affected, we will scale down to keep our size proportionate to our portfolio. Trading too large in relation to our overall portfolio does not allow us to have a large number of occurrences, which is crucial to offset bad runs and bad luck. We believe that trading small and trading often allows us to increase our probability of success and generate consistent returns in the long run.

Scaling Videos