The playbook is the document that every trade in the journal is run against. It is not a market outlook, not a thesis, not a forecast — it is a set of rules that govern behavior. The point of a playbook is to remove discretion from execution: when a setup meets the criteria, the trade is taken at the size and structure the playbook specifies. When a setup does not meet the criteria, no trade is taken, regardless of how good the idea feels.
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This page is the playbook. It is a living document — the journal will update it as the strategy evolves. The version here is the v1.0 baseline, dated 2026-07-05.
1. Position Sizing
Position size is determined by sigma-implied max loss — the loss the position would incur on a 3-sigma adverse move, not the structural max loss of the spread. This is the binding constraint.
| Rule | Value |
|---|---|
| Max loss per trade | 0.25% of NLV (net liquidating value) |
| Max loss per day | 0.50% of NLV |
| Max loss per week | 1.0% of NLV |
| Max sigma-adjusted risk per trade | 3σ move × position delta |
| Max open position count | 5 (across all structures) |
| Max margin usage | 30% of NLV |
The per-day and per-week limits are circuit breakers. If the daily limit is hit, no new trades for the rest of the day. If the weekly limit is hit, no new trades for the rest of the week. The limits are non-negotiable.
The max open position count of 5 prevents concentration risk — at any time, the book has at most 5 active structures. New trades require closing or rolling an existing position.
2. Entry Checklist
Before any trade is entered, the following questions must be answered "yes":
- Is the setup in the playbook? (vertical, iron condor, calendar, diagonal, single-leg) — if not, no trade
- Is the IV rank in the workable range for the setup? (varies by structure; see strategy page)
- Is the sigma-distance of the short strike within the calibrated range?
- Is the position size within the per-trade, per-day, and per-week limits?
- Is the position within the max open position count?
- Is there a clear exit plan? (target and stop defined in advance)
- Is this a "good trade" or a "feel-like-it trade"? — if the answer is the latter, no trade
The checklist is mechanical. It is not a guideline. The position is not entered unless every box is checked.
3. Trade Structure Selection
The structure is selected based on the IV regime and the time horizon:
| IV Rank | Preferred Structure |
|---|---|
| 0–20 (low) | Single-leg longs, debit spreads, calendars |
| 20–50 (normal) | Vertical debit spreads, single-leg directional |
| 50–80 (high) | Vertical credit spreads, iron condors |
| 80+ (extreme) | Iron condors, ratio spreads, volatility hedges |
The rule is simple: low IV favors long premium, high IV favors short premium. This is the volatility risk premium in action — when IV is high relative to historical realized vol, option premiums are "too expensive" and selling captures the premium. When IV is low, premiums are "too cheap" and buying captures the upside of IV normalization.
4. Strike Selection
Strikes are selected using sigma distance, not delta:
| Structure | σ-distance of short strike | DTE at entry |
|---|---|---|
| 0DTE vertical credit spread | 1.0–1.5σ (1-day) | 0–1 |
| 7DTE iron condor | 0.7–1.0σ (7-day) | 5–9 |
| 14DTE vertical debit spread | 0.3–0.5σ (14-day) | 10–18 |
| 30DTE calendar | 0.3–0.5σ (30-day) | 25–40 |
| 45DTE diagonal | 0.4–0.6σ (45-day) | 35–50 |
The σ-distance is calculated at entry: σ = (Strike − Spot) / (Spot × IV × √(DTE/252)). For a short put, the value is negative; for a short call, positive. The absolute value is the σ-distance.
If the desired σ-distance is not achievable (e.g., IV is too low for a 1.0σ put to be far enough OTM), the trade is skipped.
5. Management Rules
Every trade has a defined target and stop, set at entry:
- Vertical credit spread (0DTE): target 50% of credit, stop 2× credit
- Iron condor (7DTE): target 50% of max profit, stop 2× credit
- Vertical debit spread (14DTE): target 100% of debit, stop 50% of debit
- Calendar (30DTE): target 50% of max profit, stop 2× debit
- Diagonal (45DTE): target 50% of max profit, stop 2× debit
The target and stop are placed as GTC orders at entry. The position is not manually monitored for exit — the orders do the work. Manual overrides are allowed only in the case of an instrument-specific event (exchange outage, dividend on the underlying, M&A activity).
The "no touch" rule is critical. The trader is the worst enemy of a working position. If the position is not working, the stop handles it. If the position is working, the target handles it. The trader's job is to find the next setup, not to babysit the open one.
6. Adjustment Rules
Some positions may be adjusted rather than closed. The adjustment rules are structure-specific:
- Iron condor breached on one side: roll the untested side closer to test the untested side for additional credit (a "legging" adjustment). This is done only if the tested side is approaching the long strike, the untested side is still OTM, and there is at least 2 DTE remaining.
- Vertical credit spread breached: close the position at the 2× stop. No adjustments.
- Calendar at 50% loss: close the position. No adjustments.
- Diagonal at 50% loss: close the position. No adjustments.
Adjustments add complexity. The default action is to close the position and re-evaluate the setup. Adjustments are reserved for structures that have a defined adjustment path and a positive expected value after adjustment.
7. The Daily Routine
The trading day is structured, not reactive:
- Pre-market (8:00–9:30 AM ET): review overnight price action, check the economic calendar for the day, update IV rank and IV percentile for SPX/XSP/sector ETFs, identify the day's setup candidates
- Open (9:30–10:00 AM ET): no new trades. Watch the first 30 minutes for gap direction, range expansion, and any dislocations
- Mid-morning (10:00 AM–12:00 PM ET): primary entry window for 0DTE verticals and 7DTE structures. The IV is settled, the volume is established, and the daily range is forming
- Midday (12:00–2:00 PM ET): management window. Existing positions are monitored, but no new entries
- Afternoon (2:00–3:30 PM ET): secondary entry window for 0DTE positions only. The 0DTE gamma is highest here, but the theta is also highest. The edge is in the late-day premium decay, not in the directional move
- Close (3:30–4:00 PM ET): close all 0DTE positions that are not at target or stop. The 0DTE position is held overnight only with explicit overnight risk approved
- Post-close (4:00–5:00 PM ET): update the trade log, mark positions to market, write the day's notes
The routine is the framework. On a day with no setup, the routine is still followed — the pre-market review happens, the midday management happens, the post-close notes happen. The work is the routine, not the trades.
8. The Hard Rules
These are the rules that are never broken. The other rules can be relaxed in extreme circumstances; these cannot.
- No averaging down. A losing position is closed at the stop. A new position is a new position.
- No revenge trading. A loss is a loss. The next trade is independent of the previous one.
- No oversized positions. The per-trade limit is the limit.
- No discretionary overrides of the playbook. The playbook is the strategy. If the playbook needs to be changed, the playbook is changed — not the trade.
- No trading under the influence. Alcohol, recreational drugs, lack of sleep, emotional distress — all of these mean no trading. The P&L is the same tomorrow.
- No trading on a day with a major event (FOMC, CPI, NFP, PCE) unless the setup is specifically designed for the event (post-CPI vol crush, FOMC-day straddle, etc.)
These six rules are the floor. Every losing streak in the journal that has been studied started with a violation of one of these rules.