Options Trading Guide

A decision system for US equities, ETFs & index options

> 👉 New here / feeling overwhelmed by the file count? Open START-HERE.md first. You use one page a day — the rest is a look-up library.

> Educational use only. This manual is a personal decision framework, not investment advice, not a recommendation to buy or sell any security, and not a guarantee of any outcome. Options involve substantial risk and are not suitable for every investor. You are responsible for your own trades. Verify every number against your own broker’s quotes and rules before acting.

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What this is

This is not a book you read once. It is an operating manual you run every trading day. The whole point is the loop you described:

> “Tomorrow I look at the market → depending on the situation I pick a strategy → I run a checklist → once it all checks out, I place the trade.”

This manual makes that loop mechanical. You assess the market, the system narrows ~35 strategies down to a short list of candidates that fit today’s conditions, you pick one, you run its pre-flight checklist, and you place the trade — or you stand down. No improvising at the screen.

The core idea: every trade is defined by three tags

Almost every decision in options reduces to three questions. Answer them and the strategy almost picks itself.

Tag	Question	Possible values
Direction	Where do I think price goes (or doesn’t)?	Bullish · Bearish · Neutral / range · No view
Volatility	Is option premium cheap or rich right now?	Low IVR (50) · Very high (>70)
Catalyst	Is there a known event driving this?	None · Earnings · Macro (FOMC/CPI/jobs) · Other binary

01-market-assessment.md tells you how to read those three tags off the market each morning. 02-strategy-selector.md maps the tags to a candidate list. Everything else supports those two files.

The golden rule that drives strategy choice

> When implied volatility is HIGH, you want to be a net SELLER of premium. When it’s LOW, you want to be a net BUYER.

High IV means options are expensive → selling them collects rich premium and you profit as that premium decays and IV reverts down. Low IV means options are cheap → buying them gives you leverage with less time-decay drag and room for IV to expand in your favor. This single principle resolves most “which structure?” questions, and it’s baked into the selector matrix.

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How to use this manual

For how to get started and the daily loop, see START-HERE.md. This README is the map (every file, below) and the shared conventions (the house rules every file follows, at the bottom).

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Map of the manual

The spine — the daily decision system

File	What it does
00-daily-workflow.md	The daily routine you run every day; the master flowchart
01-market-assessment.md	How to read the market → produce Direction / Volatility / Catalyst tags
07-opportunity-selection.md	Which underlying to trade — rank a watchlist before the matrix
02-strategy-selector.md	The centerpiece. Direction × Volatility matrix → candidate strategies
03-risk-and-sizing.md	Position sizing, risk-per-trade, portfolio limits, the math
08-scorecard.md	Trade-quality scorecard (0–100) — objective go/no-go gate, <70 = no trade
04-account-and-approval.md	Approval levels, margin types, what you can trade (start here)
05-checklists.md	The universal pre-flight checklist + per-family quick checklists
06-playbooks.md	Named scenarios → exact actions (earnings, FOMC, gaps, vol spikes…)

The toolbox — strategy deep-dives

File	Strategies
strat-neutral-income.md	Iron condor, iron fly, short strangle/straddle, jade lizard, CSP, covered call, the Wheel, calendars
strat-bullish.md	Long call, bull call/put spreads, PMCC, call backspread, risk reversal, BWB, call fly
strat-bearish.md	Long put, bear put/call spreads, put backspread, put diagonal, put BWB, put fly
strat-volatility-event.md	Straddles, strangles, vol-crush harvests, earnings calendars/condors, VIX context
strat-hedging.md	Protective put, collar, put-spread collar, tail hedges, index/portfolio hedging, VIX

The reference shelf

File	What it does
cheatsheet.md	The one-page printable — the whole loop (assess→select→size→checklist→manage) on a page
ref-payoff-diagrams.md	At-expiration P&L shape for every structure (ASCII charts)
ref-greeks-iv-mechanics.md	Greeks, IV, IVR vs IVP, skew, term structure, assignment, margin, PDT
ref-portfolio-greeks.md	Portfolio-level Greeks dashboard + limits — net delta/vega/theta/gamma, beta-weighting
ref-management-adjustments.md	Profit-taking, rolling, defending, stops, the adjustment flowchart
ref-regime-transitions.md	Spotting regime shifts (vol expansion, breakouts, risk-on→off) and what to unwind
ref-underlying-classification.md	How instrument type (index vs high-beta vs biotech vs leveraged ETF) changes the trade
ref-data-and-news-sources.md	Where to get calendars, IV data, charts & news (Bloomberg, Reuters, WSJ, FT, Benzinga, etc.)
glossary.md	~130 terms defined
journal-and-review.md	Trade log template + the metrics that actually measure your edge

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Conventions used throughout (read once)

• Contract size: 1 equity/ETF option = 100 shares. All P&L is "× 100" unless stated.
• IV Rank (IVR) bands: 50 = high (sell premium) · > 70 = very high (sell, but size down — high IVR usually means fear/stress).
• Approval levels (your broker may number them 0–3, 1–5, or by name; the capabilities are what matter — see 04-account-and-approval.md):
  • L1 — covered calls, cash-secured puts, protective puts
  • L2 — long calls/puts (debit)
  • L3 — defined-risk multi-leg (verticals, condors, butterflies, calendars, diagonals)
  • L4 — undefined / naked risk (short naked options, short straddles/strangles, ratios with a naked leg)
• Premium-selling defaults (unless a strategy says otherwise): enter 30–45 DTE, short strikes around 16–30 delta, take profit at ~50% of max credit, manage/roll by ~21 DTE.
• Directional/debit defaults: 45–90 DTE for swings; LEAPS (>180 DTE, ~70–80Δ) for stock-replacement long legs; take profits into the move — don’t marry a thesis.
• Settlement: SPX is cash-settled, European-style (no early assignment), section-1256 taxed. SPY/QQQ/IWM and single stocks are American-style, physically settled, and carry early-assignment risk (especially short ITM calls into ex-dividend).
• Liquidity gate (non-negotiable): trade only tight bid/ask, healthy open interest and volume. A great strategy on an illiquid chain is a losing trade.

> ⚠️ Undefined-risk strategies (naked shorts, short strangles/straddles) can lose far more than the premium collected — theoretically unlimited on the call side. They’re included for completeness and require the highest approval level. They are flagged UNDEFINED everywhere they appear. If your account is defined-risk-only, the manual gives you a defined-risk substitute every time.

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Start here → 04-account-and-approval.md to learn what you can trade, then 00-daily-workflow.md to run your first loop.