Options Strategies Built for Small Accounts: Less Capital, More Control

Think you need a big account to trade options? Think again.

Traders and investors will meet many unique challenges when dealing with a smaller account, including limited capital, high risk, and lower margin for error. While it’s totally possible to use smaller accounts in trading and experience long-term success once you begin building some capital in your account balance, it requires planning and intentionality to work.

Our guide is designed for anyone interested in options trading online, but starting out with a smaller account. We’ve outlined some of the best options strategies tailored for small accounts, which can actually give traders more control and flexibility. Keep reading to learn about these specific low-capital strategies, how to manage risk, and which tools/platforms are best for smaller portfolios.

Why Small Accounts Need a Different Strategy

When it comes to using smaller accounts for trading options online, traders will have to use different strategies and techniques for securing their profits in a way that keeps their capital intact and keeps them from being designated as pattern day traders, which comes with a host of requirements that smaller traders simply cannot satisfy. Check out the common issues that new traders run across when dealing with a smaller balance and how to avoid these problems.

We’ve also added some information about the unique edge that traders can enjoy from using options instead of stocks and the ideal mindset that traders should have while trading options, especially if they’re beginning with a smaller account balance.

Common Issues

Small account holders will face a variety of common issues, including the PDT rule, limited margin, and trade sizing constraints. It’s best to know about these potential roadblocks ahead of time before trading with a smaller account. Trade small and without any problems—review these common issues that so many others have run across in the past.

• PDT Rule: Also known as the Pattern Day Trading rule, the PDT rule dictates any trader or investor who executes for or more day trades within a five-business-day period in a margin account is considered a pattern day trader. The catch for trades who are using a smaller amount of capital is that pattern day traders must maintain a minimum equity of $25,000 in their accounts at all times.
• Limited Margin: If you’re using a smaller brokerage account, you might run into a scenario where you’re limited on how much margin trading you’re allowed to undertake. Limited margin allows smaller traders to engage in trading activities but keeps them from borrowing or engaging in risky trading activities.
• Trade Sizing Constraints: This is a common issue for smaller traders. While traders with bigger balances have the flexibility to change their position sizes to take on more profit and risk, smaller accounts don’t have that luxury. These accounts must take on smaller position sizes to trade in a viable manner where they can make small gains but also incur small losses and still survive.

The Unique Edge That Options Trading Offers

Options trading offers a unique edge for traders who opt for this type of investing compared to buying or selling stocks outright. We’ve outlined some of the best benefits of trading options and the great opportunities that specifically apply to traders who start with a smaller account balance.

• Lower Capital Requirements—Though the capital requirements all depend on the broker app being used and the trading strategy involved, options trading generally requires a lot less capital compared to something like trading stocks. This makes options trading attractive because you can control a large number of shares with a smaller initial investment.
• Defined Risk—Options let traders use a lot of strategies where the risk and reward are clearly defined before the trader even uses the strategy. Credit or debit spreads and iron condors are good examples of trading strategies where the trader knows what the maximum profit potential and possible losses are ahead of time.
• Strategic Leverage—As a result of options trading allowing investors to control a large position with much less capital, traders and investors can also increase their return potential significantly if they can use the right strategy when the market moves in the right direction or experiences certain conditions.

Mindset Matters

As a trader with a smaller account, you’ll need to adopt a specific mindset where you’re prioritizing consistency and protection over moonshots. You have to adopt a conservative approach where you stick with a smaller position size (1% of your account balance) and go with trades that offer smaller, but predictable returns. Until you get to a place where you have more capital to work with, you have to stick with a safe and steady approach to ensure you don’t burn through all of your capital right away.

5 High-Impact Options Strategies for Small Accounts

Let’s talk in-depth about the best options trading strategies that can be used effectively by traders who have limited money to work with. These are some of the best ways to trade options if you don’t have the hefty account needed to take on riskier trades.

Cash-Secured Puts

This options trading strategy lets you collect a premium from selling put options while offering an opportunity to pick up a stock or asset at a discounted price if the options get exercised. You have to set some money aside to make this one work, but it’s a great way for newer traders with smaller accounts to generate steady income.

Definition

The cash-secured put strategy involves selling put options while also setting aside the cash to cover the potential purchase of the underlying asset if the option ends up getting assigned to you. It’s essentially selling out on stocks you wouldn’t mind owning. This move allows traders to generate income while waiting for a good entry. The cash-secured put works well with low-volatility stocks.

How It Works

The first step is for the trader to sell a put option contract on a stock that they would be okay with owning at some point (100 shares of that stock at a certain strike price and by a certain expiration date). At the same time, the trader needs to set aside enough money to cover buying the 100 shares at the specified strike price in the event that the put option is assigned.

These are the two scenarios for traders using the cash-secured put strategy:

• If the stock price stays above the strike price by the expiration date, the trader is obligated to buy the 100 shares at the strike price, using the money they set aside.
• If the stock prices fall below the strike price by the expiration date, the option will expire as worthless (most likely) and the trader gets to keep the premium.

Ideal Use Case

• The cash-secured put is good if the trader is interested in possibly owning a certain stock and getting it at a much lower price.
• Cash-secured puts are also good for collecting premiums (a good source of income) on the put option sale, while also buying shares at a discount.

Example

There’s a stock that’s trading at $40 per share, and you’re interested in possibly buying it at a reduced price, while also gaining a premium. Use the cash-secured put strategy that has a strike price of $38 that expires in 30 days. You get a premium of $1 per share for doing the put option sale. At a contract of 100 shares, the seller gets a premium of $100 upfront.

By selling the put, you are committing to buying 100 shares of the stock at $38 per share if the option is exercised. You would have to set aside $3,800 to pay for these shares if that scenario were to occur.

• If the stock remains above $38, the put contract would expire as worthless, and the trader gets to keep their premium of $100.
• If the stock price falls below $38, the trader would have to buy the 100 shares of the stock at $3,800, but they get to keep the premium too. Although the trader is dishing out money to purchase the shares, they are picking up a stock or asset at a price that’s much lower than the market price.

Risk Profile

The cash-secured put comes with a limited risk profile compared to other trades, making it a favorite of options traders who have smaller account balances.

• The highest amount of profit a trader can experience using the cash-secured put is the premium received for selling the put in the first place.
• The maximum amount of loss that could possibly be incurred is being obligated to buy the stock at a higher price than the market price if the stock price falls significantly below the strike price. However, this loss would come out of the money that you had set aside at the onset of the trade.

Credit Spreads (Put and Call)

Credit spreads come with a defined risk and defined reward and they’re easy to scale as your account grows, a good choice for smaller traders with limited capital. Traders can collect a premium from the trade (like cash-secured puts), and they can enter these spreads for as little as $100 or less! We’ve outlined everything you need to know about credit spreads below.

Definition

Credit spreads have traders buying and selling options on the same underlying asset with the same expiration date but a different strike price. The trader or investor sells an option with a higher premium and, at the same time, buys an option with a lower premium. This results in a net credit to the trader, just for setting up the trade. The credit spread only requires a minimum amount of capital, and it’s under $100 in many cases, making it a good option for traders with smaller balances.

There are two types of credit spreads: bull put spreads and bear call spreads.

• Bull Put Spread—This move is best for traders who are expecting the underlying asset to stay the same or increase in value.
• Bear Call Spread—Traders should use this kind of credit spread when they’re expecting the underlying asset to stay the same or to decrease in value.

How It Works

Through buying and selling options on the same underlying asset with the same expiration date, but different strike prices, traders can profit from a narrowing spreads between the two options contracts involved with the trade. When the premium received from selling the option is greater than the premium paid for purchasing the contract initially, traders can receive a net credit, which is the maximum profit potential with this trade.

Ideal Use Case

Credit spreads are a good choice for options traders because they offer the potential for a limited amount of steady profit, but it’s done while also reducing risk substantially. This move is best for traders who aren’t sure of where the price for the underlying asset will move.

Example

Traders who are feeling bullish on a certain stock can benefit from using a bull put spread. For example, the stock is trading at $85, and the trade isn’t expecting the stock price to drop below $80.

1. The first step to set up the bull put spread is to sell an $80 strike put option for a premium of $2 per share. You would be obligated to buy 100 shares of the stock ($200 at $2 per share) if the stock price fell below $80 at the expiration date.
2. At the same time that you’re setting up this strike put option, you would also buy a $75 strike put option at $0.50 per share, which would act as a hedge if the stock price were to fall unexpectedly. The total cost for this hedge would be $50 for each contract ($0.50 x 100 shares).
3. Because you’re getting a $200 premium, while also paying the $50 for the hedge, you’re getting a net credit of $150.

Best Case Scenario: If the stock price stays above $80 by the expiration date, the trader gets to keep the net credit as profit, and the put options expire as worthless.

Worst Case Scenario: If the stock price falls below $75 at expiration, you would be forced to buy 100 shares of the stock at $80, and the put for $75 will be exercised, which can offset the price of your assignment. The total loss is limited, though, to the difference between the two strike prices, minus the net credit.

The Other Scenario: Say the stock price falls between $75 and $80. The $80 put will be considered in-the-money, which means that you’ll be assigned to purchase the 100 shares at $200. The loss will be between the net credit and the maximum potential loss.

Risk Profile

Credit spreads come with a defined risk profile where the maximum loss is limited to the difference between the strike prices minus the net credit that traders receive (the premium received from selling the option).

Long Calls on High Conviction Plays

Check out this bullish options trading strategy where you buy a call option on a stock you strongly believe is going to appreciate in value. The downside risk is limited to the premium paid to enter the trade, and the strategy greatly leverages the power of price appreciation. It’s a cheaper alternative to buying 100 shares.

Definition

A long call is where you buy a call option, which is the right to buy 100 shares of the underlying stock at a certain price before the option expires. It’s a good option strategy to use when you have a strong conviction that the underlying stock price will go up, due to a wide range of potential factors, which could range from an upcoming event like a positive earnings announcement to positive news or strong fundamentals.

It’s a profitable option for newer traders who have a limited account balance because the profit potential is technically unlimited while the potential risks are capped at the premium you paid for the call options, even if the stock price declines.

How It Works

1. The buyer purchases the call option. They have to pay a premium from the seller to get the contract (this serves as the maximum loss for the strategy). Having this call option contract gives the trader the right but not the obligation to buy the underlying asset at the strike price.
2. The trader only gets into this long-call strategy if they feel that the underlying asset price will increase above the strike price by the expiration date.
3. After the trade is set up, the trader must monitor the progress to see if they need to make any changes to their strategy. Check out our example below to get an idea of the potential outcomes that a trade might experience using the long call.

Ideal Use Case

There are a few cases where traders should be using a long call, including the following:

• An upcoming event that signals good news for the stock price is a great time to use the long call strategy. It could be something like a new product launch that’s highly anticipated or a positive earnings report.
• Long calls might work well on any stock that the trader feels is going to increase steadily in the long term.
• The anticipated reversal of a downtrend is another good moment for traders to consider using the long call, especially if a long downtrend is about to be replaced with a long-term upward trend.

It’s also worth noting that there’s a higher delta rate for deep-in-the-money options that you traditionally find with the long-call strategy. The delta for a DITM call approaches 1 as it moves deeper into the money. This means that the option price will move with the underlying asset’s price almost dollar-for-dollar. What makes DITM calls so good for traders with limited capital is the fact that it’s like buying a stock with a lower upfront cost, which provides a greater degree of leverage. It also mimics the underlying asset’s price movement more closely.

Example

Let’s say there’s a stock that the trader feels will rise in price over a two-month period. The trader could buy a long call option on a stock that’s trading at $80 per share and establish a strike price of $90. To enter this long call trade, the investor would have to pay a premium of $500 ($5 per share for a contract of 100 shares).

• If the stock price goes to $90 or higher, the trader would profit if they sold the shares at $90 if the stock price was somewhere like $95 or $100.
• The other scenario would be the stock price falling below the strike price of $90. The call options would expire as worthless, and the trader would incur the maximum loss of the premium they paid to enter the trade ($500).

Risk Profile

The long call strategy has a limited risk profile. It’s limited to the premium paid to enter the position. Compare this to the unlimited profit potential and the long call is a super appealing strategy for newer traders or those who have limited capital to fund their options trading plan.

Diagonal Spreads

The diagonal spread strategy takes elements of the vertical and calendar spreads to create a trader that can be used to profit from specific market outlooks: bullish or bearish outlooks as well as neutral or sideways markets. This move offers the efficient use of capital and time decay advantage. It also combines short-term income with a longer-term directional bias.

Definition

The long call has the trader buying a long-term option and selling a shorter-term option with the same strike price (the calendar spread) and buying or selling options with a different strike price but the same expiration date (the vertical spread).

How It Works

1. Find out what direction you see the stock price going. Use long call diagonal spreads if you have a bullish outlook or a long put diagonal spread if you have a more bearish sentiment on the stock price.
2. Next, set up your strike price. Choose in-the-money or at-the-money strikes for the long call and out-of-the-money for the short call if you’re feeling bullish or bearish.
3. After setting your strike and expiration, you’ll need to simultaneously buy the long-term option and sell the short-term options.
4. Next, you must monitor the trade. If the asset moves in the direction you want it to, the profit potential goes up. If the market is moving against you, simply roll the short option to a further expiration date to give it more time to profit. You can leave the long options as it already has enough time to work with.

Ideal Use Case

• The diagonal spread is best suited for sideways or ranging markets where the price movement is relatively limited, though it can still profit in bullish or bearish conditions.
• Selling the short-dated options lets traders benefit from the time decay that occurs with options as they get closer to the expiration date.
• Diagonal spreads do well for traders with limited capital due to their reduced cost basis (the longer-dated option being much cheaper makes the trade ultimately much more profitable).

Example

Let’s say that there’s a stock that is trading at $100 per share. To implement a diagonal spread, the trader would buy call options with a 2- or 3-month expiration date. They would set up the strike price for $105, anticipating the stock price to rise moderately by the time of the contract’s expiration. At the same time, the trader needs to sell a call option with a shorter expiration date of one month and a higher strike price of $110.

The bullish part of the trade lies in the long call options with the longer expiration date and lower strike price, while the bullish element is with the short call with the shorter expiration date and higher strike price. This setup allows traders to benefit from a stable and rising stock price while also protecting them from a steep drop in the stock price.

Risk Profile

The risk is well-defined for the diagonal spread. The maximum loss is limited to the net debit that the trader pays to enter the position.

The Wheel Strategy (Modified for Small Accounts)

The Wheel Strategy is a creative combination of continually selling cash-secured puts and covered calls to benefit from the stock price’s appreciation and generate some additional income.

• Cash-Secured Puts—By selling cash-secured puts, the trader can generate income from the premiums they receive upfront from selling these put option contracts. However, the trader saves the money to buy their shares if they’re assigned the stock at the strike price, allowing them to pick up new stocks or other assets at a discount.
• Covered Calls—If you’re assigned the stock at the strike price through the cash-secured put leg of the trade, you can sell covered calls on that stock. If the stock price stays below the strike price by the expiration date, you can keep the premium. However, if the strike price goes above the strike, the trader is assigned the stock at the strike price, and they can begin again with a cash-secured put sale, restarting the cycle.

Risk Management Tips When Trading with Less Capital

The nature of trading with a smaller balance is that there’s very little margin for error. This means that exercising clear risk management practices is key for traders to keep their balance intact, but build it slowly over time without incurring too much in terms of losses.

• Outline How Much You’re Willing to Lose on Each Trade: Always define max loss before entering. This works as a guideline for exiting each trade when they begin moving against you. It helps by getting traders out of losing positions sooner rather than later and ultimately minimizing losses over time.
• Correct Position Sizing: Never use more than 1-2% of capital on one trade. This minimizes how much loss you’ll incur with each position if the trade goes south on you. The other element to employing this risk management technique is to have a well-diversified portfolio that can keep your possible losses to a minimum.
• Stay Away from Naked Options: Trading naked options refers to selling options without having the set-aside cash or shares to fulfill any possible options obligation at the expiration date. Avoid earnings gambles with naked options until you’ve gained some experience and have the capital to back up a risky venture like that.
• Use Automated Systems for Your Exits: New traders should take advantage of automatic stop losses where they enter the amount they’re comfortable with losing on the trade and let the automated system deal with selling the option if and when the stock price reaches that point. Stop losses are great for keeping traders committed to their pre-planned exit rules based on time or price. No need for manual intervention–it’s done automatically!
• Be Familiar With How Your Broker Works: Know your broker’s margin and assignment rules before committing to trading in a live market setting. Becoming familiar with the rules can better help you with forming a risk management plan for yourself.

Best Broker Platforms for Small Accounts

Traders who are dealing with smaller accounts and limited resources for making bigger moves will want to use these low-cost, beginner-friendly brokers. The biggest sell on using these broker apps or platforms is that they come with commission-free options trading (or low fees), no account minimums, and robust paper trading tools.

Interactive Brokers
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• Competitive commission structure
• Fully customizable experience
• Easy-to-use platform for beginners and smaller traders

Firstrade
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• Commission-free options
• No deposit fees
• Excellent investor protection

Robinhood
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• Low margin rates
• Very low fees
• Advanced trading charts

Tastytrade
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• Great product offerings
• Curated watchlists
• Low commissions

Charles Schwab
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• Excellent tools and platform
• PaperMoney simulated trading available
• Comprehensive options education

For more information on these five platforms and why they are the best for beginners or smaller traders, read Best Options Trading Platforms for Beginners at OptionsTrading.org to learn about which one of these might be the best choice for your overall trading goals.

Tools That Help Small Traders Think Big

Some people prefer to trade small and not expand their goals or outlook in the options market. However, if you’re a small trader who wants to grow and tackle new challenges, all while building up your account balance, we’d recommend using the following tools that can help you grow as an options trader and have the outlook that’s rooted in growing your balance and taking on bigger trades in the search of bigger profit potential.

• Options Profit Calculators—Traders can estimate the potential profit or loss of their trade by taking into mind factors like strike price, expiration, asset price, and various market conditions. When traders are able to map out each trading and discover what the profit and loss potential is, they can better construct a plan to build up their account balance through strategic trading that brings in small gains over time.
• Strategy Builders—Options traders can find these tools online and begin developing, analyzing, and implementing trade strategies to get them from being small traders with limited resources to experienced traders with the capital backing to take on bigger trades or investments. Strategy builders are great for pinpointing good opportunities or potential threats and providing a good framework for a trader’s plan and goals.
• Trade Journalling Apps—While you can keep track of what goes on in your trading sessions on paper, there are trade journaling apps where you can record all of your trading activity for later analysis. Keeping track of all trades, including the strategies used, profit and loss, time of day, and anything you were feeling while executing the trade, can offer traders key insights into what they’re doing right and what could be done differently for better results.
• Paper Trading Platforms—While journaling your trading activities can do wonders for improving your trading skills over time, a more effective tool would be paper trading simulators or demo accounts where you can run through different trading strategies or techniques without having to risk your own money. These resources let you gain experience and familiarity with the options market and how to maneuver correctly using the right strategies.

Realistic Expectations: Building Up vs. Blowing Up

While there’s some information and statistics on how often traders with smaller accounts fail while trading to trade options online, the exact answer varies from one source to the next. However, we can safely say that it’s the vast majority of options traders with limited capital that don’t succeed in trading online options. It’s somewhere between 75% and 95%.

A lot of these failures are rooted in an incorrect mindset that prioritizes chasing jackpots or big wins instead of focusing on incremental gains over time or compounding wins. Other reasons for failure include lack of knowledge or experience, overtrading, emotional trading decisions, having no trading plan in place, or not using risk management principles.

“Scaling strategies” is an effective trading technique that can benefit traders well as time passes and their account grows. It involves buying orders at different prices with different brokers. It can greatly minimize the risk that comes with placing one big order, a great choice for traders who don’t have a lot of capital they can dedicate to their investments.

Small Accounts, Big Opportunities

Traders who have limited capital to work with when they’re first beginning with options trading can still get ahead, so long as they use the right strategy. Having capital limits doesn’t have to hold new traders back—they simply have to trade smarter!

The big opportunities that come from trading with smaller accounts begin when traders start implementing the following practices into their trading routines:

• Focus on strategies with defined risk and low capital requirements. These include moves like cash-secured puts, bear call spreads, bull put spreads, long calls, or even diagonal spreads.
• Use the right tools, mindset, and brokers to give yourself the edge. Take advantage of options for profit calculators, paper trading simulators, strategy builders, and trading journals to stay disciplined and guided by your long-term goals. Develop a mindset of small gains spread out over time.
• With discipline, even a small account can build toward consistent success. Implement risk management tools like position size, stop loss orders, and outlining how much money you’re willing to lose or make on each trade.

If you’re new to options trading and you don’t have the most money to work with, it’s all about choosing a strategy that caters well to the limited capital you have to your name. Check out our strategy builder and feel free to open an account with one of our favorite, recommended brokers, that is, after you’ve read through our comprehensive reviews.