Most traders size their positions off the typical outcome: “my stop is $X away, so I'll lose about $X × contracts if I'm wrong.” But markets don't always give you your stop — a gap, a news spike, or a liquidity air-pocket can blow through it and hand you a much larger loss. Sizing off a realistic worst case, not the typical case, is what keeps an unlucky trade from becoming a catastrophic one.
Why the stop isn't a guarantee
A stop is an instruction, not a promise. It executes at the next available price, which in a fast move can be well beyond your level — on a leveraged 0DTE option, a sharp SPY move can gap the premium far past where you intended to get out, and near the close the spread widening makes it worse. Your intended risk and your possible risk are different numbers, and sizing should respect the second one.
Sizing for the tail
The fix is to build a cushion: assume your realized loss on a bad trade could be meaningfully larger than the stop distance — say 1.5–2× on a gap-prone instrument — and size so that even that loss stays within your risk budget. In practice this means trading a bit smaller than the typical-case math alone would allow. It costs you a little on every normal trade and saves you enormously on the rare bad one — exactly the trade that respects the recovery math.
Size so the worst plausible loss — not the average one — is survivable. The trade that blows people up is always the one they sized for the typical case and got the tail instead.
The mindset
This is the core of durable risk management: plan for the outcome that hurts, not the one you expect. It pairs with accounting for slippage and capping correlated exposure — all versions of “assume it goes worse than you think.” NoVo sizes to a dollar-risk budget and attaches stops by default, but no stop is a guarantee against a gap, so leaving worst-case room is a discipline worth keeping on top of it.