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Before the Trade: Set an Options Risk Budget

Define loss, time and exit rules before volatility turns a plan into improvisation.

By Rich Benvin · August 18, 2026

Options compress several decisions into one contract: direction, magnitude, timing and volatility. Start with the maximum dollar loss your portfolio can absorb. Then choose a structure whose payoff fits that budget and write the exit rules before entry. A defined process exists to keep one idea from becoming a permanent setback.

Put it into practice

  • Write down the decision before acting.
  • Define the risk in dollars and time.
  • Review the result and improve the process.