---
name: "options_trading_playbook"
description: "Pick, size, and manage defined-risk options spreads (bull call, bear put, bull put, bear call, iron condor): a selection framework driven by market outlook and volatility, payoff math for every structure, position sizing from the 1-2% rule, and management rules for exits and rolls. Triggers when a user asks how to choose, structure, size, or manage an options trade or spread, or wants a full trade plan built."
metadata: { "includeInPrompt": false }
---

# Options Trading Playbook

## Purpose

Turn "I think the market will do X" into a concrete, sized, managed spread trade. The workflow runs select, structure, size, manage, and it refuses to produce a plan when the numbers don't justify one. Everything here is defined risk only: vertical spreads and the iron condor. No naked legs, ever. This is education, not financial advice, and the output says so plainly.

## Workflow

### 1. Assess

Ask for, or read from context, five inputs before picking anything:

- **Outlook:** bullish, bearish, or neutral on the underlying, and over what timeframe.
- **Volatility:** IV Rank and IV Percentile for the underlying. If the user can't supply them, ask for the IV figure on their chain plus a sense of its normal range, or note the assumption openly.
- **Timeframe:** days to the target move, which sets the expiration to shop.
- **Liquidity:** the underlying must have tight options markets. Skip anything with wide bid/ask spreads or dead open interest; spreads bleed out on bad fills.
- **Account size:** needed for sizing. Never skip this.

### 2. Select

Map outlook and IV environment to a structure using `references/selection-matrix.md`. The short version:

- Outlook is directional and IV is low: **debit spreads** (bull call for up, bear put for down). Cheap premium, time decay working against you.
- Outlook is neutral and IV is high: **credit spreads** (bull put, bear call) or an **iron condor**. Rich premium, decay working for you.
- Neutral outlook and cheap IV: prefer buying the debit spread only if the move is likely, otherwise sit out. Cheap IV favors buyers, not sellers.
- If outlook and IV disagree (bearish but IV rock bottom): state the conflict and let the user pick which side of the argument they're trading.

### 3. Structure

Pick strikes and expiration, then compute the full risk picture with `bin/payoff.py` or the formulas in `references/strategy-formulas.md`. Every trade plan must carry, per spread: net debit or credit, max profit, max loss, breakeven price(s), and probability notes (e.g. where short strikes sit relative to the expected move, expected move = price x IV x sqrt(days/365)).

Strike guidance: for credit spreads, place short strikes outside the market's expected move; for debit spreads, place the long strike near the money and the short strike where the target lands. Same expiration on all legs.

### 4. Size

From `references/risk-discipline.md`, non-negotiable:

- Risk budget per trade = 1% to 2% of account equity, measured on the structure's **max loss**, not the premium on the ticket.
- Contracts = floor(budget / max loss per spread). If the answer is zero, the trade doesn't fit the account: say so and stop. Never round up.
- One idea, one risk budget. Two spreads on the same directional bet is one trade.

### 5. Manage

Set the management plan before entry, then follow it mechanically:

- **Debit spreads:** target taking profit around 50% of max profit; cut or reassess around 50% of max loss. Time decay accelerates late, so debit spreads have a "decay deadline" a few weeks out from expiry.
- **Credit spreads / iron condors:** target taking profit around 50% of the credit; reassess or roll when the underlying threatens a short strike.
- **Rolling:** debit spreads get rolled out (later expiry) to buy time; credit spreads get rolled out-and-away (later expiry, further OTM) when the move goes wrong. If IV is rising, roll credit-spread short strikes further OTM; if falling, roll them closer.
- **Never hold into expiration hoping for a miracle.** Close, roll, or accept assignment deliberately, never accidentally.

## Output Contract

A finished trade plan contains all of these, in plain language:

1. The thesis (outlook + IV environment, one or two sentences).
2. The chosen structure and why the alternatives lost.
3. Legs: each strike, call/put, buy/sell, expiration.
4. Numbers: net debit/credit, max profit, max loss, breakeven(s), max loss as a percentage of account equity, contract count and how it was derived.
5. Management: profit target, stop trigger, roll plan, expiry handling.
6. A skip call when applicable: "this trade doesn't fit" beats a bad trade, every time.
7. The disclaimer: educational content, not financial advice; options can lose the full amount risked.

## Operating Rules

1. Accuracy rule: every factual claim is verified via web search or a primary source. No invented numbers, dates, quotes, or events. Unverifiable gets cut or framed as opinion.
2. Defined risk only. If a requested structure has an unbounded leg, say no and offer the spread version.
3. State assumptions explicitly: if IV figures or greeks are guessed, label them as such.
4. Worked examples in this skill use hypothetical prices labeled as such; never present them as market history.
5. Keep every deliverable plain and direct: no em dashes, no formulaic AI phrasing, varied sentence rhythm. If a sentence sounds like a press release, rewrite it.