Options 09 · Options

One Complete Trade

Idea to journal entry, every module in sequence

Everything in this playbook, applied once, end to end. The stock is fictional and the numbers are illustrative — the point is the order of operations, which is identical every time.

Step 1 — The idea

A name appears on the Breakout screen from the Finding Candidates module: above its 8, 21 and 50 EMAs, volume running above average, green on the day. It is a candidate, nothing more.

Step 2 — The chart

Charted, it has been building a tight range for nine sessions after a strong leg, with the range sitting on the rising 21 EMA and volume contracting through the consolidation. Resistance at $102.40, the range low at $97.80. This is the continuation pattern the screen was supposed to find.

Step 3 — The thesis and the invalidation

Thesis: a break and hold above $102.40 resolves the range upward, with the prior leg suggesting a move toward $108. Invalidation: a close back below $97.80, which puts price under the range and under the 21 EMA. Both defined before anything is bought.

Step 4 — How long it needs

Ranges of this shape resolve within a week or two, not a day. So the thesis needs about ten sessions — which means buying at least three to four weeks of time, not the nearest weekly.

Step 5 — The contract

Stock at $100.40. On the 21-day chain, the $105 call is quoted $1.05 bid, $1.15 ask, delta 0.28, IV 28%, with 960 traded today and 5,140 open. The $100 call is $3.20 with a delta of 0.55.

The $105 call is chosen: it is liquid, a dime wide, and the target of $108 puts it comfortably in the money if the thesis is right. Delta 0.28 states the odds honestly — roughly a one-in-four proposition, taken deliberately rather than by accident.

Step 6 — Volatility check

IV at 28% is unremarkable for this name, and the earnings date falls well after expiration. No elevated premium being paid, and no crush event waiting inside the holding period. This is the check that would have vetoed the trade, and it passes.

Step 7 — Size

A $25,000 account with a 1% risk allowance gives a $250 premium budget. At $115 per contract that is two contracts, with the whole $230 treated as money that can go to zero. Two contracts is 200 shares of notional exposure — about $20,000 — which is a sane number against a $25,000 account, and precisely the check the sizing module asks for.

Step 8 — The exit plan, written down first

• Take half off if the stock reaches $106, which recovers most of the premium and leaves the rest running free.
• Close everything on a daily close below $97.80 — the invalidation, on the stock, not on the contract's price.
• Time stop: if the range has still not resolved with seven days left on the contract, close it regardless of price.
• Do not hold into the final week under any circumstance.

Step 9 — What happened, and the journal

Two versions, and both belong in the journal identically.