Check List for Options Trade

Vertical Spread at a Glance

bull vertical spread risk profile bear vertical spread risk profile
Long Vertical Call +10 -12 Short Vertical Call -20 +22
Short Vertical Put +10 -12 Long Vertical Put -20 +22
Max Profit + Max Loss = 12 – 10 = $2  Max Profit + Max Loss = 22 – 20 = $2
short, long

Check List

Shortlisting of Stock Tickers

  1. Must be liquid. (Trade Volume > 1 million daily).
  2. No trading on penny stocks, < $10

Macro Criteria for Trade

  1. Check Seasonal Analysis.
  2. Must flow with the sector seasonal, and general market sentimental.
  3. Check the technical chart for an opportunity.

Confirmation Criteria for Trade

  1. Check analyst consensus, guidance. Don’t go against their guidance.
  2. Check stock fundamental for stock direction probability.
    • Short Float
    • P/E Ratio, projecting the future stock price.
    • Compute the Standard Deviation (1xSD, 2xSD) of the stock price.
  3. Forecast Implied Volatility. (Prefer to be higher than average)
  4. Choose the correct Options strategy. Bull/Bear Vertical Spread, Iron Condor.
    1. Short strategy at 0.25 Delta probability, near month expiration to earn the decay in premium.
    2. Long strategy at 0.50 Delta, far month expiration so that will not lose too much if my direction is wrong.
  5. Be aware of the date for Earnings (Gaps) and Dividends (ITM Options Assignment). For ETF, be aware of Triple Witching day.
  6. Summary by marking the advantages (+) and disadvantages () of each analysis.

Entry Check List

  • Be aware of market news at newsmap.
  • Check the coming US economic indicator calendar of events to avoid.
  • Check Stock Trader’s Almanac for the week’s probability. (Be sure to look at the correct dates)
  • Check Technical Analysis for a good entry.
  • Minimum Risk Entry.
  • Check Implied Volatility.
  • Applied the relevant Options strategy.

Exit Check List

  • Managing Winners
    • Lock in profit
    • Taking risk off the table
    • Eliminate Gamma Risk
    • Improve POP (probability of profit).
  • Short Vertical Spread
    • 50% of max profit
  • Long Vertical Spread
    • 25% of max profit
  • Calendar Spread
    • 25% of premium paid
  • All short or long position MUST be close before the expiration day. Short position ITM will be assigned. Long position ITM will be automatically exercised.