My Options Trading Plan

This article will outline my options trading plan into details.

I approach options trading from the viewpoint of a stock trader. I use options to enhance my stock trades. The use of options makes it possible to earn money everytime you start a position. I use credit options trades as supplemental trades in my stock trades.

My plan is to generate positive cashflows when you’re entering the trade and while holding the stock. The strategy I use is simple: cash secured puts and covered call. I will adjust those simple strategies into credit or debit spreads as the market unwind.

I start with a stock which I’d like to own at specific price. The stock must be optionable.

If I want to own it immediately I just simply buy the stock directly, and start selling calls on the stock to earn cash to reduce my cost basis. Strike price selection is based on your plan with the stock: if you want to sell it immediately use ATM calls, if you want to give a potential upside potential use OTM calls, if you want to protect your downside use ITM calls. Timeframe is usually the nearest expiration date.

If I think the stock might have a bullish reversal but not sure, I use CSP to start the trade. The CSP strike price usually the ATM or first ITM. Timeframe is usually the nearest expiration date.

If you’re not sure about the stock trend, you can pick the strike price you want and write CSP on it for the nearest expiration date. Your strike price selection will affect your premiums received.

Once in a trade, I watch for reversal signal. If I think I see a potential reversal, I add the second leg into my trade.

For CSP which is a bullish strategy, I add long put to protect my downside. I usually pick first OTM put with the same expiration date of the CSP, essentially creating a bull put spread in the process. Adding short stock might be profitable, but a bit risky if the reverse is fail. Just cut your loss early when you short stocks.

For covered call which is a bearish strategy, I add CSP to provide my next entry into the stock just in case the stocks called away. Or I just buy call to speculate on the potential up swing if you don’t have enough capital to open CSP.

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