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I have a follow-up question to the Kelly Criteria - let's say that you run the numbers in the equation and come up with an optimal trade size of $5000. How would you apply that to an options trade where your risk is limited to the net debit?

My thinking was you would look at the amount of stock you are controlling with your option and correct for the delta. Lets say you have a stock at $10/share and a delta of 0.8. If you bought 5 contracts you would "control" $5000 worth of the stock. But, adding in the delta of 0.8, you are looking at more like $4000. I would think then that you would opt for a 6th contract to make the amount closer to $5000.

I wouldn't think that you would want to risk $5000 as a net debit on an options trade in this case because the leverage would change your odds.

Is my thinking correct on this?


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