Options 101: How to Build a Small, Risk-Managed Options Portfolio

The Small-Account Reality (And Why Structure Beats Prediction)

Here's the truth about trading a small account: you don't have room for sloppy risk management. One oversized position that goes against you can erase months of careful work. The margin for error is thin.

The solution isn't better predictions or fancier analysis. It's designing your portfolio so a normal losing streak doesn't wreck you. That means building around three core principles: a simple portfolio blueprint you can execute repeatedly, position sizing that limits the damage from any single trade, and clear mechanics that tell you exactly when to adjust or exit.

Think of it like running a factory. Same inputs, same process, similar outputs. Over dozens of trades, the edge reveals itself. But that only works if you can survive long enough to let probability do its job.

The Blueprint: Core, Income, and Satellite

The framework is straightforward, divide your portfolio into three buckets based on function, not just strategy names.

Core: Durable Exposure and Capital Efficiency

This is where you establish your long-term directional bias using PMCCs (Poor Man's Covered Calls) with LEAPS.

The goal here is simple: get stock-like upside exposure without tying up stock-level capital, while generating steady income from short calls along the way.

How you build it: Buy deep in-the-money LEAPS 12 to 24+ months out, targeting deltas around 0.75 to 0.85. Then sell short calls against them, typically 30 to 60 days to expiration, at deltas around 0.15 to 0.35.

Why it belongs in the core: It sets your baseline market position and generates positive theta, you're getting paid while you wait for your thesis to play out.

Income: Repeatable, High-Probability Cash Flow

This is the Wheel, selling cash-secured puts, and if assigned, flipping into covered calls.

The goal: harvest premium from quality, liquid underlyings you're genuinely comfortable owning.

How you build it: Sell cash-secured puts 30 to 60 days out, at deltas between 0.15 and 0.35, on tickers you'd be happy to own at that strike. If you get assigned, turn around and sell covered calls 30 to 60 days out.

Why it's the income layer: It turns patience into premium. Being conservative is actually an advantage here, you're not trying to predict; you're selling time decay on positions you can live with.

Satellite: Tightly Defined, Tactical Edges

This is where credit spreads and occasional iron condors live.

The goal: add diversified theta in specific setups where the premium justifies the risk.

How you build it: Sell vertical spreads 30 to 60 days out, placing your short strike outside the expected move. Manage them early and aggressively.

Why it's satellite: These are small, modular positions. You can scale them up or down without disrupting your core positions. They're tactical, not structural.

Position Sizing Rules (This Is the Backbone)

These rules are conservative by design. They're meant to keep you in the game when things get choppy.

For defined-risk trades (spreads, condors): Risk 0.5% to 2.0% of your account value per trade.

Example: With a $10,000 account, that's $50 to $200 maximum potential loss per spread.

For undefined-risk trades (cash-secured puts): Size the notional exposure so a realistic adverse move doesn't exceed 1% to 2% of your account. Stick with lower-priced, liquid underlyings to make this practical.

Portfolio concentration:

• Core PMCCs: 40% to 60% of capital

• Income Wheel: 20% to 40%

• Satellite spreads/condors: 10% to 25%

Greek budgets (yes, this matters even in small accounts):

• Keep net theta at or above zero, ideally positive most weeks

• Avoid concentrating short vega exposure in a single underlying; spread it across uncorrelated names

• Keep net delta within a range that matches your actual market stance, mildly bullish, neutral, whatever makes sense for your outlook

Maximum open positions: Start with 3 to 7 total, depending on your account size. Fewer positions, sized correctly, beats a scattered portfolio every time.

Liquidity and Selection (Make Execution Easy on Yourself)

Choose liquid underlyings with tight bid-ask spreads and robust open interest. This isn't optional, it's fundamental.

In the early stages, favor major ETFs and large-cap stocks: SPY, QQQ, DIA, IWM, plus a few liquid single names you understand well. Learn the mechanics in liquid markets before branching out.

Keep spread widths practical, typically $1 to $5 wide depending on the underlying's price. You want to be able to actually fill and manage these trades without excessive slippage.

IV context matters. Premium selling is generally more attractive when IV Rank is elevated, say, 25 to 35 or higher. But don't chase premium in garbage stocks just because IV is high. Underlying quality and liquidity still come first.

Mechanics You Can Actually Follow

Let's get specific about how to run each piece of the portfolio.

PMCC (Core Position)

Entry:

• Buy LEAPS 12 to 24+ months out, delta around 0.75 to 0.85

• Sell 30 to 60 DTE call at delta around 0.15 to 0.35

Management:

• When your short call decays to 50% to 75% of the credit received, buy it back and resell another one

• If the underlying rallies hard through your short call, roll up and out for a net credit, never roll for a net debit

• Keep the short call far enough out that it doesn't cap your upside too aggressively

Sizing tip: Start with one PMCC per $2,000 to $3,000 of capital, depending on the underlying's price.

The Wheel (Income Layer)

CSP entry: Sell puts 30 to 45 days out, delta 0.15 to 0.30, on stocks you'd genuinely be willing to own.

If assigned: Convert to covered calls 20 to 45 days out. Place strikes just above recent resistance or target deltas around 0.20 to 0.35.

Management:

• Take 50% profits on cash-secured puts when they're available

• If a put gets tested and you're approaching assignment, consider rolling out and possibly down for a net credit to improve your break-even

• Assignment isn't an emergency if you planned for it, just switch to covered calls and keep selling premium

Credit Spreads and Iron Condors (Satellite)

Entry: Open 30 to 60 days out, place your short strike outside the expected move, targeting deltas around 0.10 to 0.25.

Profit target: Close at 50% of the credit captured. Don't try to squeeze out the last dollar.

Defense: If the premium you received doubles back against you, or if your short strike gets threatened and momentum shifts, act first and ask questions later. Reduce exposure, roll for a net credit, or widen the wings. Don't hope it comes back.

Three Starter Blueprints (Templates, Not Prescriptions)

These are illustrative examples for educational purposes—not specific trade recommendations.

A) $5,000 Account - Ultra-Simple

• Core: 1 PMCC in a lower-priced, liquid ticker

• Income: 1 micro or low-priced cash-secured put (0.15 to 0.20 delta), or 1 covered call if assigned

• Satellite: 1 credit spread, $1 to $2 wide, max risk around $50 to $100

Total positions: 2 to 3. Keep it boring. Keep it tight.

B) $10,000 Account - Balanced

• Core: 2 PMCCs in uncorrelated tickers or ETFs

• Income: 1 to 2 Wheel positions (stick with CSPs if you're not ready for assignment)

• Satellite: 1 to 2 credit spreads, risking $100 to $200 per spread

Total positions: 3 to 5.

Goal: Maintain net positive theta and practice rolling only for net credits.

C) $25,000 Account - Diversified

• Core: 2 to 3 PMCCs across different sectors or market styles—maybe one defensive, one growth, one cyclical

• Income: 1 to 2 Wheel positions

• Satellite: 1 to 2 spreads or one carefully sized iron condor during high-IV periods

Total positions: 4 to 6.

Overlay: Start tracking Greek budgets actively, keep short vega diversified and net theta consistently positive.

A Weekly Routine You Can Actually Stick To

You don't need to watch the screen all day. You need a consistent process.

Monday (15 to 20 minutes): Scan for IV Rank, RSI extremes, and trend structure. Refill income or satellite positions if you have open slots.

Mid-week (15 minutes): Check your short options for early profit-taking opportunities, 50% to 75% captured is often enough. If a short strike is getting threatened and momentum indicators flip against you, adjust. Roll for a net credit or reduce size.

Friday (15 to 20 minutes): Clean up partial winners. If there's significant headline risk over the weekend, consider trimming exposure. Log your trades, entry, exit, reasoning, outcome. You're building your own performance database.

Example Month (How It Might Actually Look)

Week 1: Open 1 PMCC, sell 1 cash-secured put, add 1 bull put spread.

Week 2: Close the spread at 50% profit. Your PMCC's short call decays nicely, buy it back and resell another one.

Week 3: CSP hits 40% profit, but the market wobbles. Roll out and down for a net credit to improve your break-even.

Week 4: Underlying rallies through your PMCC's short call. Roll it up and out for additional credit. Open a new small spread to keep theta positive.

Result: No single trade carried the month. The portfolio did the work.

Risk Controls (Non-Negotiable)

No net-debit rolls on income trades. If you can't improve the position for a net credit, scale down or exit. Rolling deeper into a hole for hope is how accounts blow up.

Stop-like rule for spreads: If the premium you collected doubles back against you, act. Don't wait for it to triple.

Assignment isn't an emergency if you planned for it. Convert to covered calls and keep working the position.

Sizing is the strategy. If you need oversized positions to make returns "work," the setup isn't good enough. Period.

Common Small-Account Mistakes (And How to Fix Them)

Too many positions: Start with 2 to 4. Add more only when the mechanics feel boring and automatic.

Chasing high premium in illiquid junk: Liquidity and fill quality matter more than the headline credit. Don't trade garbage just because the premium looks fat.

Over-hedging to zero: Keep your net theta at or above zero and keep your delta aligned with your actual market view. You're not trying to be market-neutral all the time, you're trying to be sensible.

Rolling for hope: If you're rolling for a net debit just to avoid closing the trade, you're not managing, you're gambling with extra steps.

Quick Reference Checklists

Pre-Trade:

• Is liquidity solid? (Tight bid-ask, robust open interest)

• Is position size within 0.5% to 2.0% risk per trade?

• Does this keep net theta at or above zero?

• Are we outside the expected move for spreads and condors?

• Is there a clear exit plan, both profit target and defense trigger?

Management:

• Take 50% profit on short premium when it's available

• If tested, adjust first: reduce risk, roll for net credit, or widen wings

• Don't let one trade dominate the portfolio

Post-Trade:

• Log entry, exit, thesis, result, and what you'd do differently

• Review weekly, the goal is fewer, better mistakes

Final Word

Small accounts don't need flash. They need repeatable mechanics, position sizing that survives cold streaks, and a portfolio structure that earns while you wait.

Start with a core PMCC to establish directional exposure. Add Wheel premium carefully to generate steady income. Sprinkle in tight, well-sized spreads where the setup justifies it. Keep theta working in your favor. Let time do its job.

Over dozens of trades, the edge shows up, but only if you're still around to capture it.

Probabilities over predictions,

Andy Crowder

If you want a deeper dive into the live execution of these mechanics, consider our focused services: Wealth Without Shares (PMCC portfolios), The Income Foundation (Wheel/CSP strategies), and The Implied Perspective (credit spreads (verticals, condors) and tactical hedges).

📩 Want to see how a 23+ year professional options trader approaches the market in real time? Subscribe to The Option Premium, my free weekly newsletter where I share live trade examples, portfolio insights, and the probabilities behind every decision.

🎯 What You’ll Get Each Week:
✅ Actionable strategies for bullish, bearish, and neutral markets.
✅ Step-by-step breakdowns of real trades, including why I entered, how I sized positions, and how I’ll manage them.
✅ Market insights focused on probability and risk management, not hype or unrealistic promises.
✅ Education rooted in 24+ years of professional options trading experience.

🔑 A Realistic Approach to Options Trading:
Most traders chase shortcuts. I don’t.
My focus is on:

• Probability-based setups that can be repeated.

• Strategies that fit into a portfolio framework (not one-off gambles).

• Returns that compound steadily over time, not “get rich quick” pitches.

📩 Start trading smarter and more confidently, join thousands of readers who get The Option Premium every week.

📺 Want more education and community?
🎥 Subscribe on YouTube for in-depth tutorials and live trade breakdowns.
📘 Join the conversation on Facebook for exclusive insights, discussions, and real-time updates.

Disclaimer: This is educational content only. Not investment, tax, or legal advice. Options involve risk and aren't suitable for all investors. Examples are illustrative. Real results will vary. Talk to professionals before you risk real money