Building a Trade Plan

You now have the strategies, the strike selection knowledge, the management rules, and the volatility tools. The final step is putting it all into a repeatable system. A trade plan is your operating manual — the document that tells you exactly what to do so you do not have to figure it out under pressure.

Why You Need a Written Plan

When a trade goes against you, your brain switches from analytical mode to survival mode. You start making emotional decisions — holding losers too long, cutting winners too short, revenge trading, or freezing entirely.

A written trade plan removes emotion from the equation. You made the decisions when you were calm and rational. Now you just follow the instructions.

The Seven Components

Every trade plan needs these elements:

1. Market Conditions Check

Before you even look at individual stocks, assess the overall market.

• What is VIX doing? Above 20 favors premium selling. Below 15 favors premium buying.
• Is SPY trending or chopping? Trending markets favor directional spreads. Choppy markets favor iron condors.
• Any major events this week? Fed meetings, jobs reports, and CPI releases affect the entire market. Know the calendar.

Your rule: Define what market conditions you trade in and what makes you sit out. Example: "I do not open new positions on Fed days or when VIX is above 35."

2. Stock Selection Criteria

Where do you find trades? Define your universe and your filters.

Example criteria:

• Only trade stocks with average daily volume above 2 million shares
• Only trade options with bid-ask spread under $0.20
• IVR must be above 50 for credit trades, below 30 for debit trades
• Must have a clear technical level (support/resistance) to anchor my strike selection

Having criteria prevents you from chasing random ideas. You scan your watchlist, apply your filters, and trade what qualifies.

3. Strategy Selection Rules

Based on your view and the IV environment, which strategy do you use?

Write it as if-then rules:

• If bullish + high IVR: bull put spread
• If bullish + low IVR: bull call spread
• If bearish + high IVR: bear call spread
• If bearish + low IVR: bear put spread
• If neutral + high IVR: iron condor or short strangle
• If neutral + low IVR: calendar spread or iron butterfly

These rules take the strategy decision off the table. No second-guessing.

4. Entry Rules

Specific criteria for pulling the trigger.

Example entry rules for a bull put spread:

• Stock is above the 50-day moving average
• IVR is above 50
• Short strike is below a visible support level and has delta between 20 and 30
• Expiration is 30-45 DTE
• Credit received is at least 1/3 of the width of the spread
• I am not already in 3 or more positions in the same sector

If any criterion is not met, skip the trade. No exceptions.

5. Position Sizing

This is where most traders fail. They find a great setup and bet too big.

Rules:

• Max risk per trade: 2% of account value
• Max risk in any single underlying: 5% of account value
• Max total portfolio risk: 25% of account value
• Max positions in one sector: 3

For a $25,000 account:

• Max loss per trade: $500
• Max loss in one stock: $1,250
• Max total risk open: $6,250

If your bull put spread has a max loss of $350, that fits within the 2% rule. If it has a max loss of $800, it does not.

6. Management Rules

What do you do once the trade is on?

Profit rules:

• Credit spreads: close at 50% of max profit
• Debit spreads: close at 50-75% of max profit
• Iron condors: close at 50% of max profit
• Calendars: close at 25% of debit paid

Loss rules:

• Credit spreads: close at 2x the credit received
• Debit spreads: close at 50% of debit paid
• Any spread: close if the underlying breaks the support/resistance level that anchored your trade

Time rules:

• Close all positions with 7 DTE or less remaining
• Do not open new positions within 3 days of earnings unless it is specifically an earnings trade
• Review all positions daily at market close

7. Review Process

After each trade closes, log it and review it.

What to log:

• Date opened and closed
• Strategy and strikes
• Credit/debit and result (P&L)
• Why you entered (thesis)
• Why you exited (hit target, hit stop, or closed early)
• What you would do differently
• Screenshot of the chart at entry and exit

Weekly review (30 minutes):

• Total P&L for the week
• Win rate
• Average win vs. average loss
• Any rules you broke and why
• Upcoming events for the next week

Monthly review (1 hour):

• Total P&L, win rate, and average win/loss ratio
• Which strategies performed best and worst
• How well you followed your plan
• Any adjustments to the plan based on results

A Sample Trade Walk-Through

Monday morning. VIX is at 18. SPY is in a mild uptrend. You scan your 30-stock watchlist.

MSFT stands out. IVR is 58 (high). Stock is at $385, above the 50-day MA. Strong support at $370 where it bounced last month.

Strategy: High IVR + bullish = bull put spread.

Entry: Sell the $370/$365 put spread (25 delta short strike, below support). 35 DTE. Credit: $1.20. Max loss: $3.80.

Size check: $380 max loss is 1.5% of your $25,000 account. Passes.

Management plan: Close at $0.60 (50% profit) or at $2.40 (2x credit loss). Close if MSFT breaks below $370 on a daily close. Close with 7 DTE remaining.

Result: 22 days later, the spread is worth $0.55. You close for $0.65 profit ($65 per spread). MSFT is at $392 and never threatened $370. Total time invested in the trade: 5 minutes to enter, 1 minute daily to check, 2 minutes to close.

Final Thought

A trade plan is a living document. You will update it as you gain experience, as market conditions change, and as you learn what works for you. But having a plan — any plan — puts you ahead of 90% of options traders who wing it.

Write it down. Follow it. Review it. Improve it. That is how you go from knowing strategies to actually making money.

Congratulations on completing the intermediate course. You are now ready for the advanced course, where we go deeper into premium selling, portfolio management, and professional-level techniques.