Cheat Sheet: Trade Entry Checklist

One-page reference card for opening a systematic short-premium trade. Work top to bottom. Reference only — not financial advice.

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The 7-Step Flow (at a glance)

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Step 1 — Liquidity Check (gate: do not trade illiquid)

[ ] Bid/ask spread is tight — want it "as tight as possible"; wide spreads bleed P/L on entry and exit.
[ ] Volume + open interest present — high volume and OI = easier fills, less slippage.
[ ] Prefer the ~45-DTE monthly over weeklies — deeper OI, tighter spreads.

Rule: if you can't get a fair fill near mid-price, skip it. Liquidity is a hard filter, not a preference.

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Step 2 — IV Rank Check (gate: are options rich?)

[ ] IVR > 50 before selling premium — the canonical line.
[ ] Use IV Rank, not raw IV (30% IV is meaningless without context).
[ ] Cross-check IVR vs IVP; disagreement = a single old spike may be masking a genuinely elevated regime.

Why: IV mean-reverts and usually overstates realized vol → short vega gets a tailwind (vol crush) plus a wider cushion. The exact "50" is a heuristic reference line, not a law.

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Step 3 — Direction / Thesis

[ ] State a one-line thesis: neutral, slightly bullish, or slightly bearish.
[ ] IVR tells you whether to be in the trade; *delta tells you where, not which way the stock goes.*
[ ] Keep portfolio delta-balanced — don't stack same-direction bets across positions.

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Step 4 — Strategy Choice

Small accounts and gamma-shy traders → defined risk; the wider, richer undefined-risk structures earn their keep only at high IVR.
Cross-links: ../09_strangles/ · ../10_iron_condors/ · ../11_credit_spreads/ · ../07_short_premium/ · ../08_defined_risk/ · ../16_small_accounts/

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Step 5 — Strikes / DTE / Delta

DTE

[ ] Open in the cycle nearest ~45 DTE (balances theta vs gamma). 38–52 is fine; "closest to 45" is good enough.

Delta (strike selection) — delta ≈ probability of finishing ITM ("rule-of-thumb," not scientific).

Expected move (1 SD): `EM = S × IV × √(DTE/365)`.
Delta is a dial: lower Δ = higher POP, smaller credit; higher Δ = more credit, more risk.
Account for put-side skew — downside 1-SD strike often reads a touch above 16Δ; let Prob-OTM settle it.

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Step 6 — Credit Target, Max Loss, and Size

Credit target

[ ] Credit spread / IC: collect ~1/3 of the strike width → ~66% POP (`POP ≈ 1 − credit/width`). Credit buffers the breakeven.

Define max loss BEFORE sizing

[ ] Size small, trade often. Many small occurrences beat few large ones; high-probability strikes still get tested (~2× touch rate) and tails are fat.
[ ] Set a hard per-position cap (e.g., a small % of net liq / buying power) and never exceed it.
More: ../20_position_sizing/ · ../19_risk_management/ · ../06_portfolio_management/

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Step 7 — Stage Exits at Entry (do this immediately on fill)

[ ] Place a GTC limit to buy-to-close at 50% of max profit. Sold for $3.00 → close at $1.50. Mechanical, emotion-free.
Platform: use the Close at Profit Percent (% of Max Profit) order to automate it.
ATM straddle / iron fly → use ~25%, not 50% (more premium, more gamma).
[ ] Tag the ~21-DTE date. If the profit target hasn't hit by ~21 DTE, close or roll regardless of P/L to step out of accelerating gamma.
Exceptions: small far-OTM defined-risk, deep-OTM near-worthless legs, calendars/diagonals, intentional convexity/lotto plays.

Canonical exit phrase: "Manage at 50% of max profit, or at 21 DTE, whichever comes first."

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Quick Reference Card (defaults)

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Cross-references

../03_implied_volatility/ · ../02_probability/ · ../05_trade_management/ · ../18_research_findings/ · ../22_mechanics/ · ../23_platform_usage/ · ../25_common_mistakes/ · ../28_glossary/

_Evidence-labeled per the Project Charter. Education only, not financial advice._