Checklist for Buying or Selling Naked Calls or Puts

Checklist for Buying or Selling Naked Calls or Puts

Step One: Analysis
❏ I am somewhat familiar with the stock or ETF I am currently watching and analyzing.
❏ Price is showing a continuation or reversal in trend (above or below Ichimoku cloud; crossing above or under Ichimoku cloud; Squeeze firing, moving average crossover or support; ADX showing positive or negative direction and continuation; positive or negative price patterns; positive or negative candlestick patterns; up trending or down trending channels; large buy or sell volume; break above resistance, break below support, bounce off of support, and pullback from resistance; etc.). Any other technical indicator that you can get comfortable with.

Step Two: Choosing an Option Contract to Enter
❏ Expiration is not too close and correlates with my risk tolerance.
❏ Strike price is not too far out (Delta over 35), and it also correlates with my risk tolerance.
❏ There is enough open interest (300+) and volume (100+).
❏ The implied volatility is not too high or too low (5%-75%). This depends on your risk tolerance. Earnings for example.
❏ Theta is not too high compared to the contract premium.
❏ The contract is not worth more than 1-3% of my portfolio.

Step Three: Entering & Exiting the Trade
❏ I am not emotionally attached to this stock or ETF or feel emotional from a recent trade. Every trade is a new trade. Market does not have any memory.
❏ I have an exit strategy planned out and will follow it without getting emotional.
❏ Enter in at overbought or oversold levels or right at reversals (above or below Bollinger band; overbought or oversold on MFI (Money Flow Index) or RSI; cross in ADX from + to – or vice versa; MACD golden cross or death cross; at or break of resistance or support; etc.).
❏ Follow through with my exit strategy when the premium hits my S/L or P/T.