Week 10: The Shield – Portfolio Allocation

You have a Sniper Rifle. That doesn’t mean you fire all your bullets at the first target you see.

The number one reason traders blow up their accounts is not “bad analysis.” It is Over-Leverage. They bet the farm on one trade.

1. The 5% Rule

Never risk more than 5% of your total account on a single trade.

• If you have a $10,000 account:
  • Your maximum risk per trade is $500.
  • If you sell a spread that has a max loss of $250, you can sell 2 contracts. Not 10. Not 20.
• Why? Even the best Snipers miss. If you lose 5% on a bad trade, you can recover easily. If you lose 50%, you are finished.

[Image of Portfolio Allocation Pie Chart]

2. Diversification: Don’t Cluster

Don’t just sell Puts on tech stocks.

• If you sell Puts on Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA), you think you are diversified.
• You are not. If the Tech Sector crashes, all three trades lose at the same time.
• The Fix: Spread your shots. One Tech trade. One Energy trade. One Retail trade.

3. Dry Powder

Always keep 50% of your account in CASH.

• Cash is a position.
• When the market crashes (and it will), cash allows you to buy the dip while everyone else is panicking and getting margin called.
• The Sniper waits. The Sniper has ammo when others are empty.