Knowing your options is a matter of knowing yourself

One strategy, two people

Picture two people running the same put credit spread on QQQ, at the same strike, on the same day. The market falls 15% over the next two months. One of them shrugs, because they decided in advance that a drop like that was the price of the strategy. The other sells everything near the bottom and never sees the recovery.

Same trade, opposite results. The strategy did not change between them; the person did. Most of what goes wrong for option sellers is not a bad idea but a good idea held at a size its owner could not live with. That is why a strategy that works for someone else may not work for you, and why the first question is about you, not the market.

Risk tolerance is a number, not a feeling

"Moderate" means something different to everyone. A more useful answer is the size of the drop, from your account's high point, that would make you stop: 10%, 15%, 20% or 30%. Pick the one you would actually live through, not the one you would like to be the kind of person who lives through.

We resampled ten years of put credit spread results on QQQ and SPY, month by month, and asked a plain question for each answer: what is the largest share of your equity you can have at risk while that drop happens at most one year in twenty?

For a 10% drop the answer was about 5% of equity at risk. For 15% it was 10%. For 20% it was 15%. For 30% it was 25%. One step past each of those, the odds jumped: at 10% at risk, a 10% drop came in about one year in four.

Why the budget sits below the drop

The worst month in that ten-year sample lost about 95% of what was at risk. A credit spread is a small, steady payment most months and a large loss in a few, and the large losses arrive together. So the share of equity you put at risk is close to what one bad month can take from you.

This is also why counting contracts misleads. One contract can be a rounding error on one account and a third of another. The guide on position sizing shows how to read size as maximum loss, and the drawdown lesson has the full table at a 20% drop.

When you need the money

A drawdown is survivable if you can wait for the recovery. In our replays the put credit spread lost money in 2018 and 2022 and made it back in the years after. Money you will not touch for a decade can sit through a year like that. Money you need for a house or for living expenses in the next few years may not be able to.

So the phase of life works as a ceiling. In the Vesper Studio, someone near retirement is capped at a 20% drop and someone retired at 15%, whatever tolerance they pick, because the time to recover is shorter. Those caps are a starting point we chose, not a rule about anyone's life; the point is that time horizon belongs in the answer.

How much attention you can give

Short-dated options move fast and want watching. If you check your account once a week, a strategy built on 7-day options will make its decisions without you. Choosing 30 to 45 days to expiry gives a hands-off seller time to react, and the gap between them is measured in the guide on weekly versus monthly puts.

The account matters too. A cash account or an IRA cannot use margin, so it holds cash-secured puts and defined-risk spreads, not naked positions.

What this does and does not do

These numbers describe history for one structure on two correlated index funds. A cash-secured put or a leveraged ETF carries a larger worst month, so the same budget is generous for them. None of it is a recommendation, and none of it knows your whole financial life.

What it does is turn a vague sense of your own comfort into a size you can check every new idea against. In the Studio, your answers set a risk budget and every draft says how many contracts fit inside it. The strategy is still yours to choose; knowing yourself just tells you how much of it you can hold.