Notional Risk, sometimes called Notional Value, is the total risk of a derivatives contract. This term is often quoted for leveraged positions such as options, futures, and currency markets.
For options, Notional Risk is the total capital required to cover the costs of assignment. For a standard options contract with a 100x multiplier, the notional risk is the strike price x 100. When trading a spread, the notional risk is the total assignment value, but less commonly quoted, as the term applies more to naked options contracts.
If you are trading in a small account, then you should consider minimizing the notional risk of the contract or spread as part of your overall risk control.
This may be an important consideration if you have limited capital in your trading account to cover options assignment risk.
In the example of trading with a small account above, you will want to minimize this criterion in your Brutus Options Ranker Strategy.
