Significant Loss

The risk of significant losses for short premium traders is highest when volitility is low.

When traders sell premium during an expansion period once IV is already elevated, then the trades can capitalize on higher premium prices and the increased likelihood of a volitility contraction.

However, if traders sell premium during a lull period, then those traders will likely take large losses from the underlying price moving far outside the expected range.

Additionally, to close their positions early, traders must buy back their options for more than they received in initial credit and incur a loss from the difference.

VIX

Generally, the most favorable trading state for selling premium is when IV contracts. Volatility expansions, have the potential to generate significant losses for short premium traders.

OVERARCHING RULES (Always On)

• Target DTE at entry: 30–45 days
• Target delta:
    • High IV: 0.25–0.35
    • Medium IV: 0.20–0.25
    • Index/Defensive: 0.12–0.20
• Capital deployment:
    • Never deploy >90% total
    • Keep 10–15% dry powder at all times
• Assignment is expected, not avoided
• No emotional rolling

(PREP – WEEKEND OR SUNDAY NIGHT)

Portfolio Review (30–45 minutes)

1. Capital check
    • Deployed %
    • Assigned %
    • Dry powder available
2. Exposure check
    • Tech %
    • Crypto-linked %
    • Index %
    • Single ticker max ≤10%
3. Event scan
    • Earnings next 2 weeks
    • CPI / FOMC / major macro events
4. IV context
    • VIX level vs 30-day avg
    • Individual ticker IV rank
Output:
    • Which buckets need new trades
    • Which trades should not be added this week

PRIMARY ENTRY WEEK (Monday–Tuesday)

Goal: Deploy ~35–45% of monthly target premium

Monday
• Enter CSPs for:
• High IV Core bucket
• Medium IV bucket
• Use 30–45 DTE
• Do not enter all capital at once

Tuesday
• Finish any remaining planned entries
• Avoid chasing intraday IV spikes late in day

Checklist per Trade
• Strike below recent support
• Bid/ask spread ≤5–8% of premium
• Premium ≥1.8% monthly equivalent
• Delta inside target band

No rolls. No adjustments. Just clean entries.

MONITOR & LIGHT ADJUSTMENT (Wednesday–Friday)

Goal: Let theta work. Do nothing unless rules trigger.

Allowed Actions
    • Early profit taking
    • If 50–60% of max profit captured in <14 days → close
    • Defensive adds
    • Deploy small amount of dry powder if IV spikes

Forbidden
    • Rolling just because price moved
    • Adding size to “fix” a loser

This week is about restraint.

IV is still ~78-80% here, so theta should accelerate nicely.
Lock in gains aggressively—don't chase the last dollar.

ROLL / ASSIGNMENT DECISION WEEK

Trigger Window: 21–14 DTE remaining

Decision Tree
Case A: Option is OTM & ≥70% profit captured
    • Close
    • Free capital for next cycle

Case B: Option OTM but only 30–50% profit
    • Hold
    • Do not roll early

Case C: Option ATM / Slightly ITM
    • Roll OUT in time (same strike preferred)
    • Accept small credit or scratch
    • Avoid rolling down unless trend is broken

Case D: Deep ITM
    • Stop rolling
    • Prepare for assignment

Rolling is about time, not hope.

ASSIGNMENT & INVENTORY MANAGEMENT

If Assigned Shares

Day 1 after assignment
    • Sell covered calls:
    • Strike ≥ cost basis
    • 14–30 DTE
    • Target 0.25–0.35 delta

If shares gap down
    • Sell short-dated ATM calls to flatten delta
    • Reduce exposure, not maximize premium

If No Assignment
    • Begin staging next month's CSPs
    • Do not rush full redeployment

MONTHLY HEALTH CHECK

Metrics to Track
    • Realized premium vs target
    • Assignment rate (% of contracts)
    • Max drawdown during month
    • Rolling efficiency (credits vs debits)
    • % premium from High IV bucket

Red Flags
    • Assignments >35% of capital
    • Rolling for debits repeatedly
    • Premium relying on 1–2 tickers
    • Dry powder <5%