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Sell only when IV Rank is high
IV Rank above 50 is the green light for selling premium; 80+ is extreme and pays the richest. When IV Rank is low, you're selling cheap insurance — reduce size, sell further out in time, or step aside.
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Enter short premium at ~45 DTE
45 days to expiration is the standard entry. Nuance for precision: consider 60 DTE when IV Rank is below 30 and 30 DTE when IV Rank is above 30 — higher IV lets you enter closer and still get paid.
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Sell the 16 delta — one standard deviation
Strikes around 16 delta carry roughly a 16% chance of finishing in the money — the market's one-standard-deviation boundary. This is where probability and premium balance best for systematic sellers.
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Manage winners at 50% of max profit
Buy the position back for half the credit you received. Exceptions: ratio spreads at 30%, butterflies and diagonals at 25%. Taking profit early is what converts a good win rate into a great one.
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Close at 21 DTE — win, lose, or flat
Never hold short premium inside 21 days to expiration. Gamma risk accelerates near expiry; the last few dollars of premium aren't worth the tail risk. Close it or roll it out.
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Trade small
Undefined-risk trades: 3–7% of net liquidation value each. Defined-risk trades: 1–3% each. Position sizing is the single biggest determinant of survival — more on that in Mistakes
Futures.
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Cap concentration at 15%
No more than 15% of net liq in any single underlying. One ticker going wrong should be an annoyance, never an event.
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Scale total heat with the VIX
Maximum buying-power allocation rises with fear — but it's a ceiling, not a target:
| VIX level | Max buying-power used |
|---|
| 10 – 15 | 25% |
| 15 – 20 | 30% |
| 20 – 30 | 35% |
| 30 – 40 | 40% |
| 40+ | 50% |
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Keep the 75/25 mix
Allocate roughly 75% of options buying power to undefined-risk strategies (strangles, naked puts) and 25% to defined-risk (condors, spreads). The undefined side earns more; the defined side keeps the book balanced.
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Stay out of earnings
Do not hold short premium through earnings or other binary events. The tail is asymmetric — most earnings moves land inside the expected move, but the ones that don't can erase months of premium.
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Trade only liquid underlyings
Tight bid/ask spreads are non-negotiable. Wide spreads are a hidden tax on every entry, exit, and roll — they quietly destroy the edge that the whole system is built on.
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Don't manage defined-risk losers
The wings are the management. Let defined-risk losers ride to the 21-DTE exit. For undefined-risk losers, roll — the untested side closer, or the whole position out in time. Use time-based exits, not P/L stops.
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Stay delta-neutral at the portfolio level
Beta-weight your deltas to SPY and keep the book roughly neutral. Diversify across sectors and expiration cycles — but remember that in volatility spikes, correlations run toward 1.0, so watch gamma and stress scenarios too.
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Trade often — occurrences are the engine
Take profits when they're offered and extend duration when you're in the trade. A small edge repeated hundreds of times is a business; a small edge traded twice a year is a lottery ticket.
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Manage the metric, not the story
Judge trades by probability of profit, return on capital, and cost-basis reduction — not by headlines, narratives, or how you feel about a company. Strategy and duration beat direction.
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Respect buying-power expansion
Naked positions' margin requirements can more than double under stress (worst case ~3.6×). Size for the stressed margin, not the entry margin — or a volatility spike will size you out at the worst moment.
