A written options playbook with a strategy-selection matrix by volatility regime and a paper-traded month
Write a one-page options playbook, build a strategy-selection matrix from volatility regime and market view, and run and evaluate a paper-traded month.
What you will learn
- How to structure a one-page options playbook that fixes entry, sizing, management and exit rules.
- How to build a strategy-selection matrix from implied-volatility regime and directional view.
- How to run a paper-traded month with realistic fills and a complete log.
- How to evaluate the month with a few honest metrics and decide what to change.
Explanation
A playbook is a short written document that answers, before any trade, the questions you would otherwise answer under stress. For options it has five parts: a universe (which underlyings pass the liquidity filters of lesson 1), a selection matrix (which strategy in which regime), sizing rules (maximum loss per trade, theta budget and vega limit from lesson 11), management rules (profit targets, time exits, adjustment triggers from lesson 9, and the expiry rules from lesson 10) and a review routine.
The selection matrix. Rows are the volatility regime measured by implied-volatility rank (IVR, lesson 2); columns are your directional view. Each cell names one or two strategies from lessons 3 to 8; the point is to remove improvisation.
| IV regime | Bullish view | Neutral view | Bearish view |
|---|---|---|---|
| High IVR (above about 50) | Put credit spread; cash-secured put | Iron condor; short strangle only with strict size | Call credit spread |
| Middle IVR (about 25–50) | Put credit spread or debit call spread | Iron butterfly; calendar | Call credit spread or debit put spread |
| Low IVR (below about 25) | Debit call spread; diagonal | Calendar (long vega) | Debit put spread; collar on holdings |
| Earnings inside expiry | No new short premium | Only an explicit earnings strategy (lesson 6) | No new short premium |
The IVR boundaries are conventions; what matters is that they are written down.
The paper-traded month. Paper trading has two weaknesses: fills are too good and emotions are weaker. Counter the first by assuming a fill one tick worse than the mid-price on each leg and charging real commissions; counter the second by using your intended live size and logging every decision when you make it.
Each log entry records: date, underlying, IVR, view, matrix cell, strikes and expiry, credit or debit, maximum loss, planned exit, actual exit, result after fees, and whether the rule was followed. After the month, compute win rate, average win, average loss, profit factor (gross wins ÷ gross losses) and expectancy (net result ÷ number of trades), as taught in the course Risk & Trade Management. With a handful of trades these numbers show whether you followed the rules, not whether the rules have an edge.
Worked example
Hypothetical example: a paper month with four trades, account €20,000, maximum loss per trade capped at 2.5% (€500). Results are after assumed commissions. All figures are invented.
| # | Matrix cell | Strategy | Planned exit | Result | Rule followed? |
|---|---|---|---|---|---|
| 1 | High IVR, bullish | Put credit spread | 50% of credit | +€150 | Yes |
| 2 | High IVR, neutral | Iron condor on index | 50% or 21 DTE | +€120 | Yes (time exit) |
| 3 | Earnings row | Long strangle | Close morning after report | −€260 | Yes (volatility crush) |
| 4 | Low IVR, neutral | Calendar | 25% of debit | +€90 | No: held past target, gave back €40 |
Net result = 150 + 120 − 260 + 90 = +€100, or 0.5% of the account. Win rate = 3 ÷ 4 = 75%. Average win = (150 + 120 + 90) ÷ 3 = €120. Average loss = €260. Profit factor = €360 ÷ €260 = 1.38. Expectancy = €100 ÷ 4 = €25 per trade.
A 75% win rate with an average loss more than twice the average win is the normal shape of a short-premium book: one or two bad months can erase several good ones. The only process failure is trade 4; the strangle loss was planned and sized. The correct conclusion is "rules followed in 3 of 4 trades, fix exit discipline", not "the strategy works".
Common mistake
Practice activity
Write your one-page playbook, then evaluate this hypothetical month: five trades with results +€80, +€110, −€420, +€95, +€60, each sized to a €500 maximum loss on a €20,000 account. Compute net result, win rate, average win, average loss, profit factor and expectancy, and check the sizing rule.
Show solution
Net result = 80 + 110 − 420 + 95 + 60 = −€75 (−0.375% of the account). Win rate = 4 ÷ 5 = 80%. Average win = (80 + 110 + 95 + 60) ÷ 4 = €86.25. Average loss = €420. Profit factor = €345 ÷ €420 = 0.82. Expectancy = −€75 ÷ 5 = −€15 per trade.
The €420 loss is inside the €500 cap, so the sizing rule held. The month is negative despite an 80% win rate because the single loss was almost five times the average win, the profile a short-premium playbook must survive. Your playbook should state matrix cells used, maximum loss per trade, theta budget, vega limit, profit target, time exit and expiry-week rule.
Limitations: five trades are a discipline check, not a statistical test; paper fills and emotions differ from live trading.
Key takeaways
- A playbook fixes universe, selection matrix, sizing, management and review before the first trade.
- The selection matrix maps IV regime and directional view to one or two strategies and bans new short premium across earnings.
- Paper trade with pessimistic fills, real commissions and the real intended size, and log every decision at the time.
- Evaluate a month on rule-following and sizing; expectancy needs far more trades, and the rare large loss decides the long run.
Next step
To test your playbook rules on historical data instead of one paper month, continue with the course "Python for Traders & Investors: From Price Data to a Backtest", which teaches you to load price data, code indicators and build a backtest step by step.
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