Stress budget
Definition · Level 4 · Naked options
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The most you allow a stress scenario to cost, as a share of the account. Divided by the stress loss per contract, it gives the number of contracts.
Example
Account $100,000, budget 4% = $4,000.
Where Tradecraft teaches it
Level 4 · Naked options, in the lesson “Sizing short volatility by stress loss”: Why margin is the wrong measure of size, and how a stress budget gives a number you can defend.
Related terms
- Stress lossWhat one contract or position would lose if the stress scenario happened: the number that, set against the budget, gives the position size.
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