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Allocating Risk

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Generic rules for capital allocation depends on VIX levels. The higher the volatility in the market, the more capital we want to allocate in our account.

Within the main allocation, we want to allocate 75% of our capital to undefined risk strategies and 25% to defined risk strategies. We want to use no more than roughly 5% our capital per trade. Finally we make sure to narrow our short strikes during times of High IV.

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