The Retail Options Trader's Risk Playbook

A simple, repeatable way to last long enough to let probabilities work for you

Look, here's the truth about most options blow-ups: they're not about picking the wrong strategy. They're about sizing too big, timing it poorly, and—let's be honest, stubbornly holding on when we should've cut bait. The good news? A few straightforward rules will keep you in the game. And in options trading, staying power is the edge.

What follows is a practical framework you can actually use today. No jargon gymnastics, no "trust me bro" theories. This works for whatever you're trading, Wheel strategies, covered calls, PMCCs, verticals, iron condors, even those tempting earnings plays. Each section wraps up with a simple action step you can literally check off before you place your next trade.

Ready? Let's go.

Start with Outcomes, Not Opinions

Here's something that changed my entire approach: you don't need to predict where price is going. You need to define what outcomes you can actually live with.

Think of it like choosing your lane on the highway. Pick one:

Income first? You're selling premium, CSPs, covered calls, PMCC short calls, credit spreads, iron condors. You're the house, collecting rent.

Directional but defined? You've got a thesis on where things are headed, bull call spreads, bear put spreads, calendars. You're making a bet, but with guard rails.

Insurance? You're buying protection, protective puts, maybe some VIX calls. You're paying a premium for peace of mind.

Do This

Write the goal right on your order ticket. Literally type "Income" or "Directional" or "Insurance." If you can't label the goal in three words or less, you don't place the trade. Period.

Position Size: The First and Last Line of Defense

Let me tell you something: all those fancy "risk tools" people talk about? They're pure theater if your position size is wrong from the start.

Here's the simple rule of thumb I use:

Per trade: Risk 0.5% to 1.5% of your account on defined-risk spreads. Keep it at or below 2% on wheel trades or CSPs where you're actually willing to own the shares.

Per strategy bucket: Cap it at 10% to 20% of your account. So if you love iron condors, your total iron condor exposure shouldn't exceed 20% of your portfolio.

Total short premium exposure: In normal volatility, target 30% to 60% of your buying power. When VIX climbs above 25? Scale down. Things can move fast.

Let me show you the quick math. Say you've got a $50,000 account and you're risking 1% per position. That's $500 max loss per trade on defined-risk spreads. You choose your strike width and number of contracts to hit that $500 number, not the other way around.

Do This

Write down your max loss dollar amount for every single trade before you start picking strikes. Build the trade to fit that number. Don't let the potential credit seduce you into oversizing.

Let Volatility Pay You, But Don't Marry It

Volatility, specifically IV Rank or IVR, tells you how much the market is paying for optionality relative to its own history. Think of it as the market's mood ring.

Here are the simple thresholds I follow:

IVR ≥ 35: Favor selling premium. Credit spreads, condors, covered calls, this is your time to be the house.

IVR 15 to 35: It's a mixed bag. Stick to spreads where you're getting decent credit. Maybe look at calendars or diagonals.

IVR < 15: Lean toward small directional debit spreads or honestly? Sometimes it's better to sit on your hands.

Then there's Expected Move (EM), the market's rough estimate of the "typical range" to expiration. For short premium plays, you want your strikes sitting just outside that EM. For diagonals or debit spreads, you generally need price to move more than the EM for you to profit.

Do This

Jot down the IVR and EM on your trade ticket. If your strikes are sitting well inside the expected move, either widen your wings or pass on the trade. Simple as that.

Pick Deltas Like a Pro (Without Overthinking)

Delta is just probability shorthand. That's it. A 20-delta option has roughly a 20% chance of expiring in-the-money.

For income trades:

Aim for 15 to 30 delta on single-side spreads. For iron condors in calm markets, go 10 to 20 delta per side. In higher IV environments, you might push to 25 to 35 delta to collect more premium, but use wider wings to give yourself breathing room.

For directional trades:

On debit spreads, buy your long option around 50 to 65 delta. Sell your short leg 10 to 20 points tighter than your target to keep costs down.

For PMCCs and covered calls:

Pick a LEAPS (your stock surrogate) around 60 to 80 delta with 12 to 24 months until expiration. For your short call, usually go 20 to 30 delta, 30 to 60 days out. Roll when delta rises above 35 to 40, or when you've captured 50% to 70% of the credit early.

Do This

Say it out loud before you click: "I sell 15 to 25 delta. I buy 60 to 80 delta LEAPS." Then pick strikes that actually match those numbers.

Time Is Your Partner (Use DTE Windows)

You get paid through exposure to theta decay, not by holding positions until the bitter end.

For credit spreads and iron condors: The sweet spot for retail traders is 28 to 45 days to expiration. You get easier fills and plenty of theta decay.

Take profits early: Close when you've captured 50% to 75% of max profit, or when half your DTE is gone—whichever comes first. Don't be a hero.

Earnings trades: If you're playing earnings, keep it to 1 to 9 DTE. Be surgical. Size tiny. These are event-driven bets, not portfolio cornerstone positions.

Do This

When you open a trade, immediately place a GTC profit order at 50% to 60% of max profit. Let the market do the work while you're doing literally anything else.

Pre-Plan Exits: Profit, Repair, and "Nope"

If you hesitate when things start hurting, you'll donate way more money than you ever planned.

For credit spreads and iron condors:

Profit: Hit 50% to 75% realized? Close or trim. Don't get greedy.

Repair: If you're getting tested and delta climbs above 35 to 40, consider rolling out in time for a credit and nudging your strikes away from danger.

Nope: If a roll offers no credit or actually adds more risk, just close the trade. A small loss beats a massive headache every single time.

For the Wheel and CSPs:

If you get assigned, treat those shares like inventory. Sell calls 30 to 45 days out, 20 to 30 delta. If price runs up fast, roll up and out early to maintain room for more upside.

For PMCCs:

If your short call is getting threatened, either roll it up and out, or accept assignment. Here's what people miss, you'll end up short stock if assigned, so you buy the shares back while keeping the LEAPS. You usually don't touch the LEAPS unless your whole thesis changed or time decay makes a roll make sense.

Do This

Before you enter any trade, write down three lines:

• Take profit at: ___

• Roll if delta >: ___

• Max pain / close at loss: $___

These aren't suggestions. They're your rules.

One Hedge That Actually Helps (Used Sparingly)

Hedges are like seatbelts, kind of annoying until they absolutely aren't.

VIX calls (far-dated, small position size) or SPY/SPX put spreads can offset portfolio drawdowns when volatility spikes and everything goes haywire.

Keep your hedge tiny, 0.25% to 0.75% of your account per month. Think of it as "sleep insurance." Add or trim based on the VIX regime. For example, add some protection when VIX is below 15 to 16, and harvest some gains when VIX climbs above 22 to 25.

Do This

Set a monthly calendar reminder on your phone: "Hedge check." In low-volatility months, own a small, farther-dated VIX call or SPY put spread. That's it.

A Clean Daily/Weekly Routine (So You Don't Chase)

Professional risk management isn't about being smarter. It's about having better habits.

Daily (10 to 15 minutes):

Scan your open trades. Check delta and where price is relative to your short strikes. See if any GTC profit orders filled. If they did, don't immediately replace them unless you see an A+ setup. Give yourself permission to do nothing.

Weekly (30 to 45 minutes):

Refresh IVR and EM on your watchlist. Rebalance your exposure, you shouldn't have more than 20% of your account in one ticker or one theme. Plan your rolls before you're forced into panic mode.

Do This

Keep a simple tracker. Columns: Strategy, DTE, IVR, EM, Short Delta, Max Profit, Profit Target, Roll Trigger. Update it weekly. Make it boring. Boring compounds.

Earnings: Play Small, Play Smart, or Sit Out

Earnings are where retail traders consistently overestimate their skill and underestimate the potential range of outcomes.

Keep it simple:

If you're selling premium, aim your strikes outside the expected move. Use tiny size. Always defined risk, iron condor or one-sided vertical. If you're buying premium, use debit spreads to cut your cost. Understand that you need price to move more than the expected move to actually profit.

Skip any name with illiquid options. Wide bid-ask spreads and low open interest are not your friends.

Do This

Limit your total earnings exposure to 5% of your account or less across all tickers per earnings week. No exceptions.

The Psychology Guardrails (Because You're Human)

You're going to feel FOMO at market tops. You'll feel despair at bottoms. This is guaranteed. So build guardrails now.

Pre-commitment: Those exit rules you wrote down? They're the boss, not your feelings in the moment.

Sequence risk awareness: A few losers in a row doesn't mean your process is broken. It might just mean your position size was off, or the IV regime shifted.

Celebrate boring wins: Closing trades at 60% profit on schedule is elite behavior. You're not "leaving money on the table." You're being professional.

Do This

After every trade close, write one sentence: "What did I learn?" That's it. This builds the only edge that actually compounds over time, your process.

Three Plug-and-Play Trade Setups

A) 30 to 40 DTE Iron Condor (Income)

Choose a liquid ticker with IVR ≥ 35. Sell a roughly 15 to 20 delta call spread above the expected move and a 15 to 20 delta put spread below it. Target credit around 1/4 to 1/5 of your strike width. Place a GTC exit at 60% profit. If either side gets tested and short delta climbs above 35 to 40, roll that side out in time.

B) PMCC Cash-Flow Rhythm (Income + Upside)

Buy a 12 to 24 month LEAPS call with 60 to 80 delta. Sell monthly calls against it, 20 to 30 delta, 30 to 45 days out. Exit or roll when your short call delta exceeds 35 to 40, or when you've captured 60% to 70% of the credit. If you get assigned on the short call, just close out the resulting short stock position and keep your LEAPS. Usually no changes needed to the long.

C) Bull Put Spread (Directional/Income Blend)

Choose an uptrending stock with IVR between 25 and 45. Sell a 20 to 25 delta put. Buy another put 5 to 10 points lower. Size it so your max loss is 1% of your account or less. Exit at 50% to 60% profit, or if your short delta climbs above 35 to 40 and you can roll for a credit.

A 60-Second Pre-Trade Checklist

Tape this above your screen. Make it automatic:

1. What's my goal? (Income / Directional / Insurance)

2. Size: Max loss $___ (≤1% defined-risk; ≤2% if CSP I'll own)

3. IVR & EM: IVR = ___ ; strikes placed relative to EM?

4. Delta: Short Δ ~15–25; LEAPS 60–80Δ if PMCC

5. DTE: 28–45 DTE (income) or purposeful event DTE (earnings)

6. Exits set: GTC at 50–60% profit; roll trigger Δ>__; max loss $___

7. Correlation: Exposure diversified across tickers/themes?

8. Hedge (yes/no): Small, far-dated if VIX is cheap

Make it boring. Boring wins.

Final Word

Risk management isn't a chapter you read once and forget. It's a habit you practice every single time you hover over that "Preview Order" button.

If you size right, let volatility pay you without getting greedy, pre-plan your exits, and keep a small hedge in your back pocket, you'll give probability the time it needs to compound in your favor. And that's really all this game is about, lasting long enough for the math to work.

Probabilities over predictions,

Andy Crowder

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